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Risk Management Education for Wyoming Livestock Producers

Risk Management Education for Wyoming Livestock Producers. Custom Ag Solutions Brett Crosby Casey Crosby January 10, 2005. Custom Ag Solutions. Established in 2004 Based in Cowley, Wyoming Previous Experience Focus on Agricultural Finance Risk Management Feasibility Valuation

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Risk Management Education for Wyoming Livestock Producers

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  1. Risk Management Education for Wyoming Livestock Producers Custom Ag Solutions Brett Crosby Casey Crosby January 10, 2005

  2. Custom Ag Solutions • Established in 2004 • Based in Cowley, Wyoming • Previous Experience • Focus on Agricultural Finance • Risk Management • Feasibility • Valuation • Technology Applications Custom Ag Solutions

  3. Custom Ag Solutions • Casey Crosby • BS in Animal Science; • 8 Years Ag Production Experience • 2 Years Ag Finance Consulting • Brett Crosby • BS in Animal Science; MBA • 16 Years Ag Production Experience • 8 Years Ag Finance Consulting • Other Key Employees Custom Ag Solutions

  4. Risk Management Agency (RMA) • USDA Agency • Created in 1996 to Administer the Federal Crop Insurance Program • Three Divisions • Insurance Services • Research & Development • Risk Compliance • RMA Quick Facts • Over 500 Employees • Ten Regional Offices • Main Offices in Kansas City and Washington, DC Custom Ag Solutions

  5. Risk Management Agency (RMA) RMA’s Vision: To serve America’s agricultural producers through effective, market-based risk management solutions. RMA’s Mission: Promote, support, and regulate sound risk management solutions to preserve and strengthen the economic stability of America’s agricultural producers. Custom Ag Solutions

  6. Risk Management Agency (RMA) RMA’s Approach: • Partner with Public and Private Organizations to Develop New Risk Management Programs. • Partner with Private Insurance Companies to Deliver Risk Management Products (e.g., crop insurance, LRP). • Partner with Public and Private Organizations to Provide Risk Management Education. Custom Ag Solutions

  7. What is Risk? Think “Chance” and Think “Bad” Custom Ag Solutions

  8. “Chance” and “Bad” Custom Ag Solutions

  9. What is Risk Management? Think “Risk” and Think “Reward” Custom Ag Solutions

  10. “Risk” and “Reward” Custom Ag Solutions

  11. What is Risk Management? Risk Management Means Balancing Risk and Reward Custom Ag Solutions

  12. “Risk” and “Reward” Custom Ag Solutions

  13. What is Risk Management? Risk Management Means Balancing Risk and Reward Custom Ag Solutions

  14. “Risk” and “Reward” Custom Ag Solutions

  15. What is Risk Management? Risk Management Means Balancing Risk and Reward Custom Ag Solutions

  16. “Risk” and “Reward” Custom Ag Solutions

  17. What is Risk Management? Risk Management Means Balancing Risk and Reward Custom Ag Solutions

  18. “Risk” and “Reward” Custom Ag Solutions

  19. The Three Rules ofRisk Management 1. Don’t Risk a Lot for a Little. 2. Don’t Risk More Than You Can Afford to Lose. 3. Know the Odds. Custom Ag Solutions

  20. Know The Odds What is Chance? Heads Tails Custom Ag Solutions

  21. A “Fifty – Fifty” Chance Custom Ag Solutions

  22. A One-in-Five Chance Five Doors One Good Result 1 2 3 4 5 Choose a Door Custom Ag Solutions

  23. Know The Odds How Often Do We Know the Chance of a Given Outcome? How Can We “Know the Odds” in Agriculture and Livestock Production? Custom Ag Solutions

  24. Know The Odds Information • Experience • Education • Data Collection Analysis • Summaries • Statistics • Decision Support Tools Custom Ag Solutions

  25. What is Risk Management? Risk Management Means Balancing Risk and Reward Custom Ag Solutions

  26. The Three Rules ofRisk Management 1. Don’t Risk a Lot for a Little. 2. Don’t Risk More Than You Can Afford to Lose. 3. Know the Odds. Custom Ag Solutions

  27. Section II Custom Ag Solutions

  28. Let’s Check Your Risk Management Skills • Start with $5.00. • Make four decisions. • If you lose all of your money at any time, you are out. • The person with the most money after four decisions wins. Custom Ag Solutions

  29. Decision #1 Risk $4.00 Earn $5.00 (Net +$1.00) For an 80% Chance to + Custom Ag Solutions

  30. Decision #1 Risk $4.00 for an 80% Chance to Earn $5.00 (Net +$1.00) X Avoid the Big X … 3 4 5 7 8 10 1 2 X X 6 9 Custom Ag Solutions

  31. Decision #1 Risk $4.00 Earn $5.00 (Net +$1.00) For an 80% Chance to X X + Custom Ag Solutions

  32. Decision #1 Analysis RULE 1. Don’t Risk a Lot for a Little! Custom Ag Solutions

  33. The Three Rules ofRisk Management 1. Don’t Risk a Lot for a Little. 2. Don’t Risk More Than You Can Afford to Lose. 3. Know the Odds. Custom Ag Solutions

  34. Decision #2 Risk $5.00 Earn $25.00 (Net +$20.00) For a 25% Chance to + Custom Ag Solutions

  35. Decision #2 Analysis Custom Ag Solutions

  36. Decision #2 Analysis Custom Ag Solutions

  37. Decision #2 Analysis Custom Ag Solutions

  38. Decision #2 Analysis RULE 2. Don’t Risk More Than You Can Afford to Lose! Custom Ag Solutions

  39. The Three Rules ofRisk Management 1. Don’t Risk a Lot for a Little. 2. Don’t Risk More Than You Can Afford to Lose. 3. Know the Odds. Custom Ag Solutions

  40. Decision #3 20% Chance of Loss Pay $3.00 Or Risk Losing $15.00 X Custom Ag Solutions

  41. Decision #3 Analysis Don’t Risk More Than You Can Afford to Lose Custom Ag Solutions

  42. The Three Rules ofRisk Management 1. Don’t Risk a Lot for a Little. 2. Don’t Risk More Than You Can Afford to Lose. 3. Know the Odds. Custom Ag Solutions

  43. Decision #4 Receive $5.00 Making or Losing $25.00 X Or take a 50% Chance of Custom Ag Solutions

  44. Decision #4 Analysis Rule 3. Know the Odds Custom Ag Solutions

  45. The Three Rules ofRisk Management 1. Don’t Risk a Lot for a Little. 2. Don’t Risk More Than You Can Afford to Lose. 3. Know the Odds. Custom Ag Solutions

  46. Know the OddsUnderstand the Odds What is the Difference Between Investing and Gambling? The Odds are Against You When You Gamble. The Odds Should be with You When You Invest. Custom Ag Solutions

  47. Playing for Keeps • Each of you now has $1.00. • You may keep your dollar, or risk it in the next two decisions. • Depending on your decisions and chance, you may • Double your money, • Lose your entire dollar, or • Land somewhere in the middle. Custom Ag Solutions

  48. Decision A Pay 25 Cents Losing $1.00 Or Take a 33% Chance of X Custom Ag Solutions

  49. Decision A Analysis Rule 3. Know the Odds Custom Ag Solutions

  50. Decision B Receive 25 Cents Or Risk 75 Cents For a 40% Chance of Earning $2.75 (Net +$2.00) Custom Ag Solutions

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