The probability of a payoff is only an estimate and will vary as yield variability changes. One problem with using some marketing alternatives before harvest is that production is unknown. It has been proposed that producers use crop insurance to establish a minimum yield and then use marketing tools to lock in a price. There are two problems with this strategy. The second problem is that crop insurance does not insure a yield level.
Crop insurance insures an income level.
The reason crop insurance does not cover production is that the price level is set for each insurance policy. If the cash price at harvest is less than the insured price, yield coverage is greater than expected. If the cash price at harvest is greater than the insured price, the yield coverage insured is less than expected. Figures 2 through 5 show that buying crop insurance sets a minimum total income level. Using forward contracts, hedges, puts, or other marketing alternatives before harvest does not set a minimum price for all production.