Managing Price Risk
Farmers and anyone who trades in agricultural goods have to manage risk. One of the largest of those is price risk. The prices of agricultural commodities can be volatile, and the vast majority of these products have no existing futures market for which to hedge. Stable is a company that offers insurance products so that buyers and sellers can lock in price ranges on some of these non-exchange traded commodities. USA commercial director Jim Sullivan uses organic corn as one example.
Sullivan… “If you're growing organic corn and you're thinking, well, you'd probably manage the price risk of the corn that you're growing, using Chicago Board of Trade corn futures. The problem is that you can't do that, because the prices for organic corn and those of yellow number two corn are not correlated at all. So you can't manage that price risk.”
This is where Stable would offer a policy to protect a certain price range as long as there is an independent data set, which is the case for organic corn and hundreds of other products.
Sullivan… “And what you do is you say, 'I'd like to protect a certain price range for that organic corn'. We would quote it for you and you would pay the premium and lock in that specific coverage.”
Sullivan says Stable has worked with a variety of ag products from avocados to dairy.