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De-risking weather – Stable Group provides unique price insurance

Meet the Network
Agri-TechE

Stable was founded when Richard Counsell – a farmer’s son with 15 years of experience gained from running technology businesses in Chicago, London and Melbourne – realised how agri-food businesses like his own could protect themselves from volatile prices. 
Ahead of the Pollinator event ‘Keeping a Sunny Outlook – De-risking Agriculture Through Weather-Tech’, Joe Brooker, a Senior Analyst at Stable, explains further about how Stable can help manage the risk of extreme weather.

Please can you explain how by using a platform such as Stable farmers can reduce the risk of extreme weather?

Among the many risks farmers have to deal with the largest are around price and yield.
These two main risks are linked but also independent: weather impacts yield which can impact price depending on scale, timing and other factors, weather may impact yield but not price and price may move without a change in weather.
Price is more volatile than weather and Stable allows farmers to mitigate this price risk. If we take the production of corn in 2019 as an example, early issues with flooding made an impact on the potential yield of corn in the US.
If we look at the corn price (see graph opposite), the rally at the start of the season in May, resulted in prices jumping from $3.40 to $4.60 in a matter of weeks. However as yield impacts became better understood in August (and other factors impacted price) corn prices then dropped back to $3.40.
If a farmer was hedging he would have had only a short window in which to trade to gain this higher price. With Stable a farmer could have purchased an insurance policy mitigating that downside risk (but not having to pay the margin call when prices fell). In agriculture there is always shifts from boom to bust, and this is partly a function of weather; Stable allows farmers to take the risk of boom to bust out of their operations by insuring their price levels.
You can find more details here: https://www.nass.usda.gov/Charts_and_Maps/Field_Crops/cornyld.php

Looking back over 2019, when were the most problematic times of the year? When did most of the claims occur?

There are periods of the crop cycle where vulnerability to yield and weather risk is heightened, this changes by crop type, but can include rate of emergence, grain filling, root growth, etc.
In 2019 planting issues at the start of the spring season were a major issue for producers, however, it was too early to have a definitive idea about yield.
Certainly the market reacted to the planting issues, but in the end the crop was only modestly below the yield trade (see graph opposite).
In this theoretical example – as Stable does not write policies in the US – the majority of claims would have been based on price reduction, therefore the price drop in Jul-Aug would have been when claims would have occurred.

Looking forward to 2020, do you think the use of weather predictions can reduce risk in farming? If so can you give an example?

Weather predictions can be useful for scheduling crop management, but they are still limited in their temporal abilities as the accuracy of forecasts drops very quick after a week. This is why a product like Stable is needed… to plan for the longer term and have the confidence to invest in the future.
More information about how Stable Price insurance protects the British farmer from volatile prices – stableprice.com/farming