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Managing the Risk

Managing the Risk. Presented by: Mark Gold President Top Third Ag Marketing, LLC. The last few months have brought new risk…. 1. European debt crisis/Greece, Italy, Spain, etc. 2. MF Global 3 . January 12 th report. Current Fundamentals in Agriculture.

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Managing the Risk

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  1. Managing the Risk Presented by: Mark Gold President Top Third Ag Marketing, LLC

  2. The last few months have brought new risk…

  3. 1. European debt crisis/Greece, Italy, Spain, etc. • 2. MF Global • 3. January 12threport

  4. Current Fundamentals in Agriculture 1. 2011 corn, wheat, and soybean carryouts are ample 2. Will China imports continue to grow? 3. Growing world carryouts • Corn may be the only exception until the fall 4. Farmers are storing grain

  5. The Bull Market Scenario 1. Corn production is significantly lower than current U.S.D.A. estimates. The real numbers may not be known for months 2. Chinese demand is expected to keep growing. Since 2000, demand has risen 50% while production only gained 38% 3. China needs to re-build stocks that were sold to keep domestic prices in check

  6. The Bear Market Scenario 1. World grain production and carryouts are ample Current estimates put U.S. 2012 corn acres at 94-97 million

  7. 2. Economic meltdown in Europe 3. MF Global crisis will curtail speculative buying 4. Decreased domestic livestock feed usage “Ain’t too many beef critters out there” 5. Reduction in Ethanol mandates 6. Any other Black Swan

  8. If your farm is a business, do you run it like one? Production x Price = Revenue

  9. What are the expenses of production? • Rent/land cost • Seed • Chemicals • Equipment • Fertilizer • Fuel $500/Acre for corn or wheat

  10. Would you spend 20-30 cents/Bushel if it could bring you 80 cents-$1.20/Bushel in revenue?? Risk 20-30 cents to make 80 cents - $1.20 4:1 Risk Reward ratio

  11. How can you become a better marketer? • Spend more time on marketing by developing a marketing plan • Combine effective crop insurance (RA, CRC, Grip) with your marketing plan • Use options to manage risk • We buy put options to protect unsold bushels • We buy call options to replace the grain we have sold • Don’t become a speculator

  12. The Million Dollar Marketing Mistake This year the American farmer’s concept of marketing is “I’m just gonna stick it in the bin.” Farmers are storing grain hoping for higher prices in the spring If farmers usually sell their crops in the bottom third of prices, obviously we haven’t reached the bottom third yet, because they haven’t sold it

  13. This quote comes from a Midwest grain elevator. “farmers were in ‘not going to sell anything mode’… basis was very strong and I remember getting a call from a producer saying ‘the country must be out of corn because XYZ elevator’s bins are almost empty… and I said, ‘yes, that is because the commercial elevator will make the “economic decision”… ie; if the carry goes out of the market they will move the inventory… that doesn’t mean there isn’t a supply of corn, just that it’s being held by folks who are unwilling sellers at these cash prices…” www.newagtalk.com

  14. Current Marketing Recommendations • 2011 Corn • Sell 70% of harvested bushels now • Buy $6.40 May puts for 15 cents to protect unsold bushels • IF THE FARMER IS STORING CORN THESE PUT OPTIONS ARE IMPERATIVE • 2012 Corn • Sell 40% of GUARANTEED bushels now • Buy December $5.20 puts for 31 cents • Hold off buying call options until Top Third makes the recommendation

  15. 2011 Wheat • Sell 100% of harvested bushels now • Buy call options to replace these sales upon Top Third’s recommendation • 2012 Wheat • Sell 25% of GUARANTEED bushels now • Buy July $6.40 put options for 35 cents • Buy call options upon Top Third’s recommendations

  16. 2011 Soybeans • Sell 70% of harvested bushels now • Buy May $13.20 put options for 25 cents • Buy call options upon Top Third’s recommendation • 2012 Soybeans • Sell 40% of GUARANTEED bushels now • Buy November 2012 $12.20 put options for 45cents • Buy call options upon Top Third’s recommendation

  17. Recommendations for Cattle and Hogs • Buy Cattle put options, look to spend $2.75-$3.25 / cwt. • Buy Hog put options, look to spend $2.50-$3.00 / cwt.

  18. Any statements of fact herein contained are derived from sources believed reliable, but are not guaranteed as to accuracy, nor do they purport to be complete. There is a risk of loss in trading commodity futures and options on futures. You may lose more than your original investment. Commodity trading is not suitable for all investors.

  19. We want to earn your trust • We offer: • Personal advice from an experienced risk management specialist • Full service Hedge accounts • Custom Hedge programs • Cash management advice • Commission $75 R/T • Clearing through R.J. O’Brien • Web site grain comments 2 times a day at • www.topthird.com 877-884-3343 877-TT-HEDGE

  20. Questions

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