Southwest Risk Management Southwest Risk Management Training for Priority Training for Priority
CommoditiesCommodities
by
Trent TeegerstromRussell TronstadUrsula Schuch
Dept of Ag. & Resource Economics and Plant SciencesThe University of Arizona, Tucson AZ
Topics Covered in WorkshopsTopics Covered in Workshops• Influence of Quality and Season on Hay
Market Decisions
• Ranch Restocking and Other Mgt Decisions
• Record Keeping / Financial Risk Management
• Hands On Computer Training: Some Basics for Any Business
• Basic Financial Statements
Example of Decision Tools Example of Decision Tools
• Crop Mix/Diversification
• Long Term Herd Evaluation
• Animal ID Systems
• Farm and Ranch Cash Flow
• Crop Insurance
Bulkiness of Alfalfa Relative to Bulkiness of Alfalfa Relative to Other Field Crops, 2003Other Field Crops, 2003
• 70% of hay is consumed on the 70% of hay is consumed on the farms & ranches where grown.farms & ranches where grown.
Hay Price = 100.319 + 12.205*ln(#dairy cows/#feedlot cattle) (3.694) (2.019)
R2 = 0.443standard error of coefficients in parentheses
Source: USDA/NASS
$0
$20
$40
$60
$80
$100
$120
$140
$160
0 0.1 1 10 15
$/ton for 2003
# Dairy Cattle / # Feedlot Cattle
AL
AZ
AR
CA CO
CT DE
FL
GA
ID IL
IN
IA KS
KY
LA
ME
MD MA
MI
MN
MS
MO
MT
NE
NV
NH
NJ
NM
NY
NC
ND
OH
OK
OR
PA RI
SC SD
TN
TX UT
VT
VA
WA
WV WI
WY
• Location• Dairy Feed Demands• Quality
U.S. Hay Prices by State, 2003U.S. Hay Prices by State, 2003
Wtg. Avg. $92.9/ton
Alfalfa Prices, Yuma AZ, 1983-04Alfalfa Prices, Yuma AZ, 1983-04
$0
$20
$40
$60
$80
$100
$120
$140
$160$/ton (2003 dollars)
High Quality
Low Quality
Off-Grade
Estimated Yuma Mean Price SeasonalityEstimated Yuma Mean Price Seasonality
$0
$20
$40
$60
$80
$100
$120
$140$/ton (2003 dollars)
High Quality
Low Quality
Off-Grade
Hay Price is a function of:• lagged prices • seasonality (polynomial w/ constraints)• simultaneous error structure
$127
$114
$99$87$75
$68
Yuma Price Seasonality & VarianceYuma Price Seasonality & Variance
$0
$20
$40
$60
$80
$100
$120
$140$/ton (2003 dollars)
High Quality
Low Quality
Off-Grade
0
10
20
30
40
50
60
70
80variance ($/ton)
High Quality
Low Quality
Off-Grade
2
Estimated Conditional CovariancesEstimated Conditional Covariances
0
20
40
60
80
High Quality, Low Quality
0
20
40
60
80
High Quality, Off-Grade
0
20
40
60
80
Bi-Week of Time Period: 7= 1/2/1984 and 544= 5/18/2004
Low Quality, Off-GradeGreatest Substitution
• Substitution: dairy vs. feedlots/horses
• Prices below (above) long-term averages -- mean reverting
• Volatility after August (low & OG)
• Storing alfalfa in April has the lowest expected payout
• Lower price volatility by going for highest quality -- cost/risk??
Market ImplicationsMarket Implications
Herd Planning
-- Multi-Year Restocking Path (5 yrs)
-- 20-year returns in current dollars
Multiyear Budgets
-- Cash production and management costs
Ranch Investments
-- Amortization of assets.
Restocking Worksheet Restocking Worksheet
lbs. / hd.
1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 19960
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
$0
$20
$40
$60
$80
$100
$120
$140
$160
Steer Price($/cwt.)
Avg. SteerWeight (lbs/hd)
Avg. Real Steer Prices: Gila County Sale Avg. Real Steer Prices: Gila County Sale
Inflation Adjusted Prices Declining --
Capital AvailableCapital Available
Restocking PathRestocking Path
Initial HerdInitial HerdBiological ProductivityBiological Productivity
Market PricesMarket Prices
Monthly Water & Labor ConstraintsMonthly Water & Labor Constraints
Water FlowWater Flow
Annual Water LimitAnnual Water Limit
Water UseWater Use
Portfolio Risk on Revenues & AcresPortfolio Risk on Revenues & Acres
RevenuesRevenues
AcreageAcreage
Absolute Dollar Risk ExposureAbsolute Dollar Risk Exposure
Dollars at RiskDollars at Risk
Crop InsuranceCrop Insurance
Work To Date!Work To Date!• 12 Workshops and Presentations Across
Arizona
• 1299 Individuals Attended Workshops and Presentations
• 694 of the 1299 Were Producers
• 120 Individuals Received Hands-on Computer Training
Western Centers Risk Mgt Project
• Extended our Focus to Labor Mgt Issues in the Arizona Nursery and Landscape Industries
Topics Covered in WorkshopsTopics Covered in Workshops• Nursery marketing decisions
• Reducing risk associated with musculo-skeletal disorders (WMSDs)
• Heat stress management in the workforce
• Communication between supervisers/foreman/workers
Roles and Responsibilities of an Agricultural Employer
Need to Be a Manager * Functions of Management * Types of Activity in Managerial Roles
Managers’ TheoriesRecognizing and Managing RisksManaging for Compliance and BeyondEssentials for the ManagerGetting up and Keeping up as a Manager of People
Work To DateWork To Date• Published and distributed bookmarks on Heat
Stress Informational in English and Spanish
• Heat Stress article in the American Nurseryman (national trade magazine)
• Five Conference Presentations
• Over 375 individuals receiving materials and training