1 Farm and Risk Management Team Cooperative Extension – Ag and Natural Resources Dairy Price Risk Management:

2 Session 1: Risk – What Is It? How Do You Feel About It? What Can You Do About It? What we’re going to cover in this program What is your personal attitude toward risk What kinds of risks you face in your farming enterprise and how they are addressed Milk price volatility: Incidence and impacts

3 Session 2: What’s a Good Price? What Do I Need to Meet My Business and Family Goals? Calculating cost of production “Costing out” longer-term business objectives and personal goals. Prioritizing goals in a way that defines minimum, basic, and optimistic price objectives Thinking about a marketing plan

4 Session 3: What’s a Good Price? What Does the Market Say? Basic elements of federal milk marketing order pricing How your milk check is “built” from the class III price. How markets for class III products work. Basis and basis risk. How to estimate basis.

5 Session 4: What’s a Good Price? How Do You Know What the Market Is Saying? Historical trends and seasonality in milk prices Factors affecting prices, basis and basis risk Major sources of outlook information and how they can be accessed Interpretation -- what does the information mean?

6 Session 5: Price Risk Management Strategies I – Futures Markets futures markets – purpose, mechanics, history, terminology, regulation, brokers, etc. How to read and interpret futures price quotes The short hedge for protecting a milk price The long hedge for protecting an input price

7 Session 6: Price Risk Management Strategies II – Options on Futures Contracts Options markets – mechanics and terminology Factors influencing option premiums How to read and interpret options quotes Using put options to set price floors Comparing futures and options

8 Session 7: Price Risk Management Strategies III – Cash Forward Contracts and Advanced Options Strategies Cash forward contracting. How plants use futures and options in contracting with farmers for fixed prices and floor prices Combination strategies: Using puts and calls together with futures

9 Session 8: Pulling the Trigger Strategy guidelines – if I see this, then I should do that. What is your plan? WRITE IT DOWN Where do we go from here?