Solution
A large grain producer worked with Stable to protect themselves against organic corn price volatility, giving them peace of mind while still allowing them to benefit if prices moved their way.
A lot of factors contribute to making farming a risky business, from unpredictable weather and crop yields to transportation hiccups on routes as nearby as the Mississippi river or as far away as the Suez Canal.
A member of Stable wanted to manage as many of these risks as possible, while still being able to participate in positive market moves should grain prices rise in the future. But while corn futures exist to manage price risk, the basis between corn futures and organic corn is too high to make a futures hedge viable.
Pork trim is a key ingredient for many of the menu items sold by Stable’s quick service restaurant (QSR) client. But pork trim price volatility was 64% over the past year, making it difficult to forecast prices and complicated to set budgets and plan for the future.
Stable’s Club technology platform gave the member the ability to view organic corn prices and calculate the correlations between various benchmark prices and the prices they had achieved for corn sales in the past. They selected the benchmark price that matched their exposure and stress tested their forecasts using specialized, easy-to-use scenario analysis tools. The Club then calculated the premium required to protect the risk.
Cash flow was a concern for the member, so they worked with the Club's Smart Sync technology to arrange a flexible premium payment schedule that worked for their business. Premiums paid into the Club earned interest while in the account.
At the end of the contract, the corn price had decreased and the settlement amount was calculated and sent automatically to the client, without the need for a lengthy claims process. The settlement amount however was smaller than the total premium paid into the Club account, so the balance of the premium was made available again to the client.
Stable’s solution gave the client a tax efficient buffer against volatility in the price of corn, enabling them to have protection in place without having to pay futures brokerage for a hedge that might not fit. The contract also gave them the ability to participate in market moves their way - and even allowed them to avoid paying away premiums unnecessarily.
Stable’s Club helped the member manage their downside exposure to organic corn with an innovative and targeted solution that zeroed in on their precise exposure.
Stable’s sophisticated data-science platform allowed the client to identify, track and assess their risks.
Stable’s protection contract was linked to a third party, independently published benchmark price selected by the client.
The member was able to choose protection levels which made sense for their business.
When corn prices fell, the settlement was calculated automatically and paid quickly. If the corn price had stayed high, the member would have been able to keep all of the premium they paid into the Club, less the Club fees.
Premium may be expensed if you simply add it to the cost of your inventory
Premiums were held in a segregated account for peace of mind.
Club fees were 100% transparent, and the Club was fully aligned with the member’s success.
