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 Marketed:Soybeans CFCHedgeOptionSAHStore 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 Marketed:Corn CFCHedgeOptionSAHStore 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 Marketed:Wheat CFCHedgeOptionSAHStore 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 • Gerloff’s web site: http://web.utk.edu/~quince/

12. Tools Developed OccurrencePotential Loss Subjective ProbabilityCoverage (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 OccurrencePotential LossSubjective ProbabilityCoverage (Offset) Farm Operator’s Operator’s 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 operator’s input. on type of policy. Death of Farm Operator’s 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 operator’s input. Death of Operator’s Loss of spouse’s 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 spouse’s input.