Southwest Risk Management
Training for Priority
Commodities
by
Trent Teegerstrom
Russell Tronstad
Ursula Schuch
Dept of Ag. & Resource Economics and Plant Sciences
The University of Arizona, Tucson AZ
Arizona Risk Management Workshops
Topics 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
•
•
•
•
•
Crop Mix/Diversification
Long Term Herd Evaluation
Animal ID Systems
Farm and Ranch Cash Flow
Crop Insurance
Forage Example
Bulkiness of Alfalfa Relative to
Other Field Crops, 2003
• 70% of hay is consumed on the
farms & ranches where grown.
U.S. Hay Prices by State, 2003
$160
$/ton for 2003
• Location
• Dairy Feed Demands
• Quality
MD
NM
$140
$120
OR
$100
MT
NE
$60
OK
KS
SD
ND
MO
AL
AR
UT
IL
KY
IA
NC
GA
SC
WV
NY
NJ
VT
WA
ME
Wtg. Avg.
$92.9/ton
AZ
VA
WY
$80
OH
IN
NV
CO
TX
RI
MA
DE
CT
NH
PA
FL
ID
MI
CA
MN
WI
TN
LA
MS
$40
Hay Price = 100.319 + 12.205*ln(#dairy cows/#feedlot cattle)
(3.694) (2.019)
R 2 = 0.443
$20
standard error of coefficients in parentheses
$0
0
Source: USDA/NASS
0.1
1
# Dairy Cattle / # Feedlot Cattle
10 15
Alfalfa Prices, Yuma AZ, 1983-04
Estimated Yuma Mean Price Seasonality
$127
$114
$99
$87
$75
$68
Hay Price is a function of:
• lagged prices
• seasonality (polynomial w/ constraints)
• simultaneous error structure
Yuma Price Seasonality & Variance
Estimated Conditional Covariances
Greatest Substitution
Market Implications
• 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??
Livestock Example
Restocking Worksheet
 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.
Avg. Real Steer Prices: Gila County Sale
2,000 lbs. / hd.
1,800
1,600
$160
Inflation Adjusted Prices Declining --
$140
Steer Price
($/cw t.)
$120
1,400
$100
1,200
1,000
$80
800
$60
600
$40
400
200
Avg. Steer
Weight (lbs/hd)
0
$20
$0
1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996
Biological Productivity
Market Prices
Capital Available
Biological Productivity
Initial Herd
Market Prices
Restocking Path
Grazing Capacity
Cummulative
Returns
Crop Example
Inputs: Yields, Prices, & Costs
Yields
Prices
Production Costs
Max Profit Subject to Constraints
Capital
Acreage
Monthly Water & Labor Constraints
Water Use
Water Flow
Annual Water Limit
Portfolio Risk on Revenues & Acres
Revenues
Acreage
Absolute Dollar Risk Exposure
Crop Insurance
Dollars at Risk
Solver to Maximize Solutions
Acreage Mix of 3 Scenarios
Profitability of 3 Scenarios
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
Nursery Work
Topics 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’ Theories
Recognizing and Managing Risks
Managing for Compliance and Beyond
Essentials for the Manager
Getting up and Keeping up as
a Manager of People
Convention Demonstrations
Work 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
Questions and
Comments?