Transcript Powerpoint - Ag Risk & Farm Management Library

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Michigan State University Extension
Dairy Risk Management
Education Efforts
Fred Hinkley, Ogemaw Co. Extension Director
Craig Thomas, MSU-Extension Area Dairy Agent
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Ag Marketing Update
History
 1996:
Sanilac Co. dairy producers encouraged me to
provide information on “dairy futures”.
 1997: 3-day general ag marketing education workshop
held in the region.
 1997: Participants wanted a market update the
month following the workshop.
 1997-present: Regular monthly Ag Marketing Update
has been held at the MSU-Extension Office in Sanilac
Co.
 1997-present: Core of this group remains the original
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participants from the 1997 regional workshop.
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Ag Marketing Update
History
 1996:
Sanilac Co. dairy producers encouraged me to
provide information on “dairy futures”.
 1997: 3-day general ag marketing education workshop
held in the region.
 1997: Participants wanted a market update the
month following the workshop.
 1997-present: Regular monthly Ag Marketing Update
has been held at the MSU-Extension Office in Sanilac
Co.
 1997-present: Core of this group remains the original
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participants from the 1997 regional workshop.
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Ag Marketing Update
History
 2000-02:
Dairy Options Pilot Program training sessions
recruited more producers.
 2003: Dairy Marketing 101 workshops recruited more
producers (2-day, basics of dairy marketing).
 2003: Used Dairy Marketing 101 workshop in Clinton
Co. to start a second monthly Ag Marketing Update
group.
Conduct a regular
Ag21,642
Marketing
 Currently: Represents
at leastmonthly
44 farms;
cows;
Update
in both
Sanilac
Co. (17.8)
andmilk
Clinton
Co.
528.3
million
lbs.
milk; $83.6
million
sold (2004).
(16.5).
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Ag Marketing Update
Format
 Dates:
Meet on the first Tuesday (Sanilac Co.) and
Thursday (Clinton Co.) after the 15th of the month.
 Notification: Maintain a mailing list for each location
to send out reminder cards a week or so before the
respective meetings.
 Time:
Meetings begin at 10 AM and usually run to
about 12 Noon (informal lunch usually follows).
 Locations: Sandusky: Sanilac Co. MSU-Extension
Office Conference Room, 37 Austin St., Sandusky; St.
Johns: County Courthouse, Garden Level Conference
Room, 100 State St., St. Johns
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Ag Marketing Update
Presenters
 Fred Hinkley:
Ogemaw Co. MSU-Extension CED.
Registered commodity broker since 1981; owned and
operated Columbus Commodities from 1984-1994;
maintains Commodity Series 3 License and has direct
contacts with the commodity exchanges in Chicago
and New York.
 Role: Fred reviews the grain market (corn, soybeans,
SBM, wheat, etc.) fundamentals and technicals;
reviews dairy market technicals; suggests various
general grain marketing strategies (output/input) and
general dairy marketing strategies (Class III).
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Ag Marketing Update
Presenters
 Craig Thomas:
MSU-Extension Dairy Agent (Sanilac,
St. Clair, Huron,Tuscola, Lapeer). No prior experience
in marketing or futures trading, etc. Doctorate from
University of Florida in Dairy Mgmt., Ag Economics,
Business Administration.
 Role: Primary role is to cover the fundamentals of the
dairy market (i.e. situation and outlook), maintain this
information on MSU Dairy Team web site, provide
spreadsheet-based analysis and decision-making tools
(e.g., cost of production, marketing plan).
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www.canr.msu.edu/msue_thumb/pages/dairy_team/dairy_team.htm
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Ag Marketing Update
Order of Proceedings

Fred: At 10 AM goes over the grain markets (fundamentals
& technicals) and potential general grain marketing
strategies (sellers & buyers). Usually takes 40-60 minutes.

Craig: Follows-up with a report on the fundamentals of the
dairy market (situation/outlook). From time-to-time offers
other information pertinent to dairy and provide helpful
tools for assisting producers in calculating cost of
production, tracking futures, options, and forward
contracting positions. Usually takes about 30 minutes.
Fred: Follows up with technical analysis of dairy market
and general dairy marketing strategies. 30 minutes

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Ag Marketing Update
Order of Proceedings

Fred: At 10 AM goes over the grain markets (fundamentals
& technicals) and potential general grain marketing
strategies (sellers & buyers). Usually takes 40-60 minutes.

Craig: Follows-up with a report on the fundamentals of the
dairy market (situation/outlook). From time-to-time offers
other information pertinent to dairy and provide helpful
tools for assisting producers in calculating cost of production, tracking futures and options positions. Usually takes
about 30 minutes.
Fred: Follows up with technical analysis of dairy market
and general dairy marketing strategies. 30 minutes

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Ag Marketing Update
Other
 Audience:
Farmers (dairy, cash grain, livestock),
agribusiness (feed reps, nutritionists, vets, cash grain
buyers, milk coop managers, etc.), ag lenders.
 Atmosphere: Very informal and laid back. Great deal
of exchange between all participants. No dumb
questions, many levels of expertise, learn from each
other, presenters don’t have all the answers.
 Lunch: Important component of the meeting; allows
more exchange of ideas and information, allows
people to get to know and trust one another.
Producers learn a great deal from each other’s
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personal experiences.
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Ag Marketing Update
Other
 Charge: A $10/person fee is collected at each site to
cover materials, refreshments, and mileage for
presenters.
 Other: We’ve held special educational sessions
specifically for ag lenders (at their request). Most of
these took place during the prolonged period of
depressed milk prices in 2002-2003 (producers were
clamoring for loc’s for margin accounts).
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Ag Marketing Update
Emphasis


Cost of Production: We constantly stress the importance of
producers knowing their cost of production for each crop
marketed. Knowing the cost of production is an absolute
necessity for formulating viable marketing strategies.
Price Risk Management: Our goal is to help them control
input and output price risk NOT price enhancement.

Speculation: Very quick and strong warnings are issued when
participants suggest marketing strategies that are speculative
in nature.

No “one size fits all”: Emphasis is always placed on the fact
that suitable marketing strategies are highly dependent on
cost of production, financial position, producer risk attitude,
and risk attitudes of “significant others.”
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Ag Marketing Update
Market Analysis
 Overview:
Fundamental and technical analyses are
reviewed at each monthly meeting, and additions
and/or subtractions are initiated.
 Fundamentals: Craig reviews supply, demand and
inventory numbers (i.e., milk production, commercial
disappearance, cold storage, etc.) and also keeps
current on the weekly cash markets and their
implication on the NASS Class III price and CME
III futures
 Class
Technicals:
Fredprices.
uses charts to provide retracement
numbers and reviews Volume and Open Interest,
Relative Strength, and Stochastics to assist in
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identifying entry prices and order timing.
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Ag Marketing Update
Marketing Decisions
 Individual: We are not a “marketing club” where
marketing strategies or decisions are part of a
common “pool”. Decisions are individualized and
farm specific.
 Stress: The concept of a written marketing plan that
is part of a well-thought out business plan taking into
account factors specific to the individual farm (e.g.,
cost of production, financial position, risk attitudes).
 Implementation: Before implementing a specific
marketing strategy, we stress that the producer must
be aware of how the decision will affect the financial
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and production risk management plan of their farm.
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Ag Marketing Update
Marketing Strategies
 Unique:
Each farm is unique in their ability and desire
to accept or transfer risk.
 Decisions: The ability to make decisions is tested and
the willingness to accept the outcomes varies, both
within the farm context and within the community.
 Flexibility: Flexibility and the willingness to implement
“Plan B” weigh heavily on the success of many
marketing strategies.
 Support: A primary goal is to reinforce the marketing
skills we teach, and at times, provide the “psychological” support necessary to see the marketing plan22
executed to completion.
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Larry Simon
Dairy Price Risk Management
2005 Marketing Plan
25%
January
February
March
April
May
June
July
August
September
October
November
December
$15.40
$14.60
$14.20
$15.80
$15.00
$15.00
$15.00
50%
75%
$16.20
$16.20
$16.20
$16.20
$16.20
$16.20
$16.20
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Larry Simon
Dairy Price Risk Management
2005 Marketing Plan
 Incremental:
Every 25% increment represents 200,000
lbs. of milk.
 Price Levels: Prices in bold print represent contracts
that have been filled, either at the CME with a Class III
futures contract or a forward contract with MMPA.
 Orders: All orders to sell milk should be cancelled
prior to the monthly Milk Production Report and the
monthly Cold Storage Report.
 Continuation: The fundamentals of the market will
then be reassessed before continuing with the
marketing plan.
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Larry Simon
Dairy Price Risk Management
2005 Marketing Plan
 Target Prices: Target prices are developed from
historical price charts (e.g., cumulative probability
charts) and the analysis of the current factors
influencing both the technical and fundamental
aspects of the milk markets.
 Other Considerations: Cost of production, risk
attitudes, and the total financial needs for the farm
business are integral parts of the marketing strategy
and decision-making process.
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