| PROJECT SUMMARY |
Producers of soybeans, corn, wheat, and cotton have several tools available to manage price risk. These tools include futures and options markets which enable them to hedge, forward contracting, storing, and purchasing crop revenue insurance. To fully utilize this portfolio of available instruments, as well as understanding the pros and cons of each of these instruments, another vital set of information needed. This additional information involves establishing the best estimate of future price movements over the decision period for the commodities in question for the relevant local markets (the expected cash price producers might expect). This set of information about supply and demand conditions (locally, domestically, and internationally), expected policy changes, and the expected influence of each on commodity price is often called an “outlook.” However, as events and circumstances change, the outlook for a particular crop or set of crops oftentimes must be reformulated. That is, an outlook is a moving target that changes as does the market. One’s outlook must be continually updated, and be able to digest and formulate significant changes in market conditions and circumstance that can affect prices. If one were to survey extension specialists and others who routinely are asked to present and write “outlook” papers, they would probably agree that the natural life of an outlook is only one or two months at best before one should go back and update and assess new market information. In this regard, one can view the futures and options market as a market mechanism that is continually updating the outlook, at different time intervals in the future. Historical basis information can be combined with these futures prices to make local price predictions (Piggott, Shumaker and Curtis 2005).
County extension agents and specialists are routinely asked to give outlooks at grower meetings throughout the extension season. For most specialists the one request for workshops that comes most often is a request for an outlook. Outlook talks are difficult to present and time consuming to prepare. No matter how well trained someone is as an economist it takes time to read, review, update, and assess new market information. An outlook talk is not a presentation that one can take from the previous year without careful consideration to updating the state-of-affairs with all of the most recent information. It is worthwhile to note that two more recent phenomena have made giving outlook talks more important but also more challenging. First, since the advent of Freedom to Farm in 1996 the importance of having a good understanding of the current outlook has been heightened with farmers now being freer to choose what they plant. Second, with globalization of agricultural production, and the U.S. being fully integrated into the world market, the outlook and understanding of current market conditions in the other producing and consuming countries and the influence that this might have on the U.S. have become more important. For example, one cannot give an outlook pertaining to, say, soybeans in the U.S., without being fully informed about what has recently occurred in South America in relation to production and China in terms of demand.
It is essential that extension marketing specialists leverage their time so they can help more farmers with fewer resources. It is also essential that producers receive the best information available with which to make decisions. If ag agents are to present up to date and, therefore, the most relevant information, they must prepare a new outlook if the meetings are more than a few weeks (and, sometimes, days) apart. It is important, therefore, to teach county agricultural agents the skills they need to prepare the new information needed for an up to date outlook.
This project seeks to provide county agricultural agents in the Southern region with the skills, sources, and training needed to prepare an outlook presentation to grower-group meetings in their area. It is envisioned as a two-year project. A complete training manual (an electronic version will also be made available online at the NC-State Grain Marketing website), with an accompanying CD containing PowerPoint® templates and databases that can be easily updated, will be produced and disseminated. Once developed, the PI’s will give a presentation on the training manual at the National Risk Management Education conference in Spring 2006 to gain feedback, as well exposure, for this work product with colleagues. The PI’s will have the final work product peer reviewed by colleagues experienced in the “art” of the presenting outlooks to get their critical insights.
A training workshop conducted by the principal investigators for agricultural agents will be held in Raleigh, North Carolina to which key agricultural extension agents from across the Southern Region will be invited to attend. The key agents will be identified by extension marketing specialists throughout the region. The criterion for identification as a “key” agent is that the training provided will likely have a high return on SRRME’s (and the PIs’ time) investment in terms of the agent’s ability to teach other agents how to use the manual and to foster tangible improvement in farmers’ price risk management decisions.
References
Piggott, N.E., G. Shumkaer, C. Curtis. ”A Guide to Price-Risk Management in Grain Marketing for Georgia, North Carolina, and South Carolina” Published by North Carolina Cooperative Extension North Carolina State University January 2005 (forthcoming)
http://www.ag-econ.ncsu.edu/faculty/piggott/handbook.htm
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| NUMBER OF PARTICIPANTS: 0 |
| TOPICS COVERED |
| Insurance products |
| Market analysis and outlook |
| Cash and futures pricing tools |
| Marketing strategies, plans and clubs |
| Understanding of economic risks associated with new production technologies |
| Ability to manage changes in policy and regulation |
