Teaching Producers To Make The Call Delton C. Gerloff, Jimmy C. Castellaw, Samuel C. Danehower University of Tennessee UT Extension

Price Risk Management n Knowledge vs. Action n Case Farm Study n Marketing Tools n Develop Marketing Plan n Follow up Farm Visit

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

Farm Characteristics n 1 million bushels of corn n 13,000 bales of cotton n 620,000 bushels of soybeans n 257,000 bushels of wheat

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

Market Prices, 2004 n Soybeans ä $7.00, spring; $5.50 harvest n Corn ä $3.00, spring; $2.00 harvest n Wheat ä $4.00 spring, $3.00 harvest

Percent of Crop Marketed: Soybeans CFC Hedge Option SAHStore Normally Price$6.77 $5.75 $5.56 $5.70 Used a Marketing Plan: Normally Price$6.83 $5.56 $5.70

Percent of Crop Marketed: Corn CFC Hedge Option SAHStore Normally Price $2.74 $1.86 Used a Marketing Plan: Normally Price $2.60 $1.86

Percent of Crop Marketed: Wheat CFC Hedge Option SAHStore Normally Price $3.81 $3.06 Used a Marketing Plan: Normally Price $3.71 $3.06

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

Other Sources of Information n Gerloff’s web site:

Tools Developed OccurrencePotential LossSubjective ProbabilityCoverage (Offset) Zero YieldCash 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.

Tools Developed Occurrence Potential 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 Spousesalary or on farm input to In the long run, policy. labor and management. Cost assured. of hiring labor to replace spouse’s input.