Monday, March 25, 2013

Real-life Marketing Decisions

by John Berry, Penn State Extension Educator, Lehigh Co.

Row crop farmers are challenged by several sources of risk.  These sources of risk include production, price, finance, legal, environmental, health, and government policy.  The focus here is marketing risk.  "Market Risk" is translated into English as - the risk that prices will fluctuate.  We plant a crop expecting a harvest and from our perspective - a rising commodity price is good.  Declining prices, prices below break-even, and price uncertainty are often viewed as not good. This is price risk.

Farmers have several tools available for use as choices when contemplating managing price risk.  The most common tools are cash grain contracts, futures contracts and option contracts.  The most significant and basic opportunity for managing price risk is the proper use of a revenue-based crop insurance product.  The concept behind managing price risk is to establish a "safety net."  This safety net is intended to minimize the potential for financial loss.  One important point to recognize is that minimizing the potential for loss usually comes at a cost.  We must pay for our price risk management tools.  Many farmers combine tools to achieve a balanced approach to price risk management.

To help farmers more deeply understand grain markets and perhaps even put together a grain marketing plan, Penn State Cooperative Extension and Allendale, Inc. partnered to produce a recorded webinar.  Using materials developed by Extension in Pennsylvania and Minnesota, as well as commercial products from Allendale, the webinar is intended to enhance farmers' grain marketing understanding and skills.

Check out this timely archived video soon!

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