Teaching Producers To Make The Call

1
Teaching Producers To Make The Call

• Delton C. Gerloff, Jimmy C. Castellaw,
• Samuel C. Danehower
• University of Tennessee

UT Extension
2
Price Risk Management

• Knowledge vs. Action
• Case Farm Study
• Marketing Tools
• Develop Marketing Plan
• Follow up Farm Visit

3
Participants

• Full time farm families
• One Family/County
• Extension Agents
• 17 Farms, 24 Participants

4
Farm Characteristics

• 1 million bushels of corn
• 13,000 bales of cotton
• 620,000 bushels of soybeans
• 257,000 bushels of wheat

5
Meeting Evaluation

• Meeting Content 9.2/10
• Level of Instruction 9.2/10
• Instructional Material 9.2/10
• Examples Used 9.1/10
• Meeting Length 8.1/10
• I understand a lot more about risk mgt. and using
  marketing tools 16/17

6
Market Prices, 2004

• Soybeans
• 7.00, spring 5.50 harvest
• Corn
• 3.00, spring 2.00 harvest
• Wheat
• 4.00 spring, 3.00 harvest

7
Percent of Crop MarketedSoybeans

• CFC Hedge Option SAH Store
• Normally 46.1 0.0 0.0 39.1 14.4
• 2004 47.2 0.0 5.5 25.8 21.6
• Price 6.77 5.75 5.56 5.70
• Used a Marketing Plan
• Normally 42.8 0.0 0.0 42.5 13.8
• 2004 55.6 0.0 0.0 21.8 22.6
• Price 6.83 5.56 5.70

8
Percent of Crop MarketedCorn

• CFC Hedge Option SAH Store
• Normally 60.8 0.0 0.0 14.2 25.1
• 2004 42.3 0.0 0.0 30.3 27.4
• Price 2.74 1.86
• Used a Marketing Plan
• Normally 65.5 0.0 0.0 17.5 17.0
• 2004 53.9 0.0 0.0 22.1 24.0
• Price 2.60 1.86

9
Percent of Crop MarketedWheat

• CFC Hedge Option SAH Store
• Normally 68.9 0.0 0.0 31.1 0.0
• 2004 77.2 0.0 0.0 17.4 5.4
• Price 3.81 3.06
• Used a Marketing Plan
• Normally 74.0 0.0 0.0 26.0 0.0
• 2004 77.2 0.0 0.0 22.8 0.0
• Price 3.71 3.06

10
Tools Developed

• What if Spreadsheet
• Given current prices, range of outcomes
• Based on 20 years seasonal data
• Non Traditional Risk Worksheet
• Potential Loss
• Subjective Probability
• Coverage Available

11
Other Sources of Information

• Gerloffs web site http//web.utk.edu/quince/

12
Tools Developed

• Occurrence Potential Loss Subjective
  Probability Coverage (Offset)
• Zero Yield Cash cost of crop inputs, Low
  Crop insurance indemnity,
• also potential net revenue based on type
  and amount
• from crop enterprise. of coverage, less
  premium.
• Price Drops To Or Loss is time specific, i.e.,
  Moderate Cash forward contracting,
• Below Loan Rate the difference between the
  selling futures, or buying
• current offered price and the put options
  may be able to
• guaranteed price via the achieve higher
  floor than
• government program (loan rate). the loan
  rate.
• Divorce Up to or exceeding 50 of equity,
  ?? ??
• plus legal expenses.
• Accident With Limitless, could be millions.
  Low Liability insurance, up to
• Liability policy coverage.

13
Tools Developed

• Occurrence Potential Loss Subjective
  Probability Coverage (Offset)
• Farm Operators Operators labor and Low
  Health insurance may cover
• Disability management input, plus initial
  and longer term
• medical and rehabilitation health cost.
  Disability
• expenses. Also, cost of insurance may
  help
• hiring labor to replace offset other
  cost, depending
• operators input. on type of policy.
• Death of Farm Operators labor and In the
  short run , low. Life insurance, burial
• Operator management input plus In the long
  run, policy. possible medical and funeral
  assured.
• expenses. Cost of hiring
• labor to replace operators
• input.
• Death of Operators Loss of spouses off farm
  In the short run, low. Life insurance, burial
• Spouse salary or on farm input to In the long
  run, policy.
• labor and management. Cost assured.
• of hiring labor to replace
• spouses input.