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Virginia Cooperative Extension -
 Knowledge for the CommonWealth

Managing Price Risk: Tools, Strategies, and Market Plans Workshops held in Suffolk and Tappahannock

Farm Business Management Update, December 1997

By Dave Kenyon of the Department of Agricultural and Applied Economics, Virginia Tech

Purpose: The 1996 Farm Bill greatly increased producer exposure to price risk. These workshops are designed to help grain producers manage these price risks.

The workshops are designed so that each day can stand-alone. Day 1 covers the basic mechanics of hedging with futures. Day 2 includes hedging with options and basic procedures for developing reasonable price expectations. Day 3 involves developing a marketing plan for the farm based on the objective, costs, current price expectations, and the pricing tools available.

Producers who already have a good understanding of futures and options do not need to attend Days 1 and 2. The marketing plan development of Day 3 will assume attendees understand how to hedge with futures and options. People who have never attended a similar workshop or have never used futures and/or options, should attend all three days.

Each day will begin at 9:00 a.m. and end at 3:00 p.m. The program will include some instruction, lots of examples, exercises, and question and answer periods. Lunch and coffee breaks will be provided each day.

Marketing plans will be developed based on farm costs and financial situation. An EXCEL computer program will be made available to all Day 3 participants to assist in plan development. Participants will have materials to walk through the market plan development process.

People attending Day 3 will be given the opportunity to participate in a research project designed to help producers develop and implement a marketing plan. More information and the opportunity to participate in this project will be presented during Day 3.

Day 1
1. Why hedge?

2. Cash contracts

3. Futures contracts
    Margin calls
    Futures accounts

  Day 2
1. Hedging with options

2. Developing price expectations
    Supply and demand
    Technical chart analysis
    Historical perspective

  Day 3
1. Marketing plan development
    What is my objective?
    Estimating cost of production
    Breakeven prices
    Impact price and yield risk on returns

2. Analysis of current situation
    Historical perspective
    Expected prices
    Current tren

3. Develop market plan
    Price level
    Tools to use
    Percent hedge

Fees: $20 a day will be charged to cover a notebook of valuable information and a computer program for developing a marketing plan designed for a specific farm.

Suffolk registration information can be obtained from:
Guy Sturt
P.O. Box 399
Dinwiddie, VA 23841
(804) 469-4514

Tappahannock registration information can be obtained from:
Keith Balderson
P.O. Box 849
Tappahannock, VA 22560

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