Tools and Techniques for Managing Risk for Virginia Grain and Oilseed Producers

Abstract

Two very important benchmarks in the development of a marketing strategy are the variable and fixed costs of production. Every farmer has costs of production that are unique to their particular farm. Accurately identifying the costs of production or break even costs for the various crop enterprises is important. Also important is the analysis of revenues and costs across the spectrum of various acreage allocations, yields, and market prices. A computer program in an EXCEL spreadsheet format has been developed to facilitate the identification of the costs of production and the financial impact of various yields, market prices and acreage allocations.

A second concern in the development of a marketing plan is the determination of reasonable price expectations given historical prices and current supply and demand estimates. Two devices used to analyze the situation today in a historical context are historical futures price distributions and the relationship between ending stocks versus season average price. Marrying these two devices together creates historic price distributions conditioned on estimated ending stocks. The conditional price distributions are significantly different from one another.

Producer attitudes and concerns in the area of pricing plans and price risk management are of interest to researchers and extension educators. A survey of Virginia grain and soybean producers explores pricing behavior, adoption of written pricing plans, attitudes towards risk management and risk management tools, and impediments to employing and executing a written marketing plan.