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.
1. Why hedge?
2. Cash contracts
3. Futures contracts
1. Hedging with options
2. Developing price expectations
1. Marketing plan development
What is my objective?
Estimating cost of production
Impact price and yield risk on returns
2. Analysis of current situation
3. Develop market plan
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.
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