Dave Spears, Vice President and Chief Marketing Officer for MKC, has had an ongoing relationship with Swiss Re for the past ten years and had worked with the company on other types of risk management tools for production ag.
“We needed a company that had the financial strength to back stop the risk,” stated Spears. “Swiss Re has a history of providing sound risk management tools and is financially strong.”
In order for Swiss Re to be comfortable with the amount of risk and commit to the program, MKC needed to provide the appropriate data and analysis that demonstrated the need and justification for the program.
“Our field marketers and managers spent a great deal of time gathering production history on double crop soybean yields,” stated Spears.
Spears commented that although conditions at wheat harvest were dry, Swiss Re agreed to offer the program based on the detailed analysis and prior production history that was submitted. “Our diligence paid off and Swiss Re agreed to provide a program that was a first of its kind offered in the United States,” Spears stated.
While eleven counties were eligible to participate in the program, the drought did prevent some from being able to participate. Reno, Kingman and Sumner counties were not eligible as the drought had already set in and field conditions did not allow emergence of the plant. According to Spears, the other counties were eligible as it was deemed that crop conditions - even though deteriorating - did warrant the planting given climate normal rainfall for the summer.
MKC received final approval from Swiss Re to move forward with offering the program on June 17. With a final planting date of June 30 to be eligible for the program, MKC field marketers and managers had to work quickly to market the program. The result was close to 18,000 acres enrolled in the program. New seed was sold to approximately 10,000 of those acres.
The program offered producers two options. The first was $150 per acre that would cover all production costs including the option fees or the choice of $200 per acre that essentially guaranteed a profit per acre.
Unfortunately, the worst drought in years persisted and we all know the results. And even though MKC entered into the contract with the producer, all of the risk was passed on to Swiss Re. Producers who participated in the program will benefit greatly as Swiss Re will pay out approximately $3 million to those who participated.
According to Spears, the drought hasn’t stopped Swiss Re from considering another program next year.
“Even with this year’s drought, Swiss Re wants to expand the program next year,” commented Spears. “Some aspects, however, may change or be adjusted.”