Success StoryPrice Risk Management Tools



Price Risk Management Tools

Author: Todd Davis

Planning Unit: Agr Economics

Major Program: Ag Marketing

Outcome: Initial Outcome

To help farmers improve their understanding of grain marketing and price risk management tools, I have led workshops and meetings explaining commodity futures, options, and various price risk contracts for both beginning farmers and established farmers. Using historical cash market and futures market data, I have evaluated the effectiveness of these tools to reduce price risk for grain sold at harvest and for stored grain. Part of this effort was an online the UK Grain Marketing Series via Lync to farmers in Butler and Simpson Counties. Five one-hour presentations were delivered from November 2015 to March 2016. Topics presented were: an overview of grain marketing and risk management; using futures and options to manage risk; understanding the cash market and tools to manage risk; a discussion of past performance of alternative risk management strategies; and understanding crop insurance as a foundation in developing a marketing and risk management plan for 2016. Participants also played the on-line grain risk management game The Commodity Challenge to apply what was learned in a risk-free environment. This program is a national finalist in the 2016 National Association of County Ag. Agents’ contest titled “Search for Excellence in Young, Beginning or Small Farms/Ranger Program.” Greg Drake, Butler County ANR Agent, stated, “The national chair told me that if we did this program again and had better participation, we would stand a good chance of winning. When we presented about the program county agents across the country were fascinated by the concept and the program.”

I co-directed two undergraduate independent study experiences in 2017 that have benefited my risk management Extension program. A student developed a detailed database of commodity options that will allow for detailed evaluation of strategies recommended by market consultants that have a speculative component. Researching the performance of these strategies and reporting this information to farmers will improve their understanding of the risks and benefits of following speculative market positions.  Another independent study I co-directed used cash and forward contract from twelve markets in Kentucky combined with commodity futures data to evaluate pre-harvest and post-harvest risk management strategies from 2000 to 2016. Extension bulletins are in progress to report this analysis to improve managers’ decision-making capabilities. 






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