What’s an Act of God clause worth?
What’s your risk tolerance? Given the choice between a deferred delivery contract and a contract with an Act of God clause how much money would you forego to get the Act of God protection? Here’s a specific example. There are new crop canaryseed deferred delivery contracts available at 25 cents a pound and there are contracts with an Act of God at 24 cents. If you were interested in contracting, which contract would you choose? Personally, I’m risk adverse when it comes to contracts. In most years, you should be able to produce the 500 or 600 pounds an acre necessary to fulfill a specialty crop contract, but nothing is certain. A hailstorm or an early frost can do a lot of damage. I sleep a lot better with an Act of God clause. I can understand why a buyer would rather not take the risk, but with contracts spread over a wide geographic area, a buyer should be in a safer position than a single farmer. Some people point out that there are no canola contracts with an Act of God clause. The same goes for the other major crops. In my opinion, that’s a shame. A lot of farmers would accept a lower new crop price if they were protected from being offside on the contract after a production disaster. I’m Kevin Hursh.