Cows Hazard Administration.


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Hazard - the shot of misfortune or an unfavorable result or occasion ... Zebu Crosses and Composites. GEOFF BENSON, ARE, NCSU. 23. Value Differences, Graded Sales, ...
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Dairy cattle Risk Management GEOFF BENSON, PhD Extension Economist Dept of Agricultural and Resource Economics North Carolina State University

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Agenda Introduction Price determining Price hazard administration Hedging with cows fates USDA-RMA LRP Program Cattle fates alternatives Setting value targets & pulling the trigger Summary GEOFF BENSON, ARE, NCSU

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RISK - the possibility of misfortune or an unfavorable result or occasion Anticipated or surprising Known likelihood or unverifiable RISK EXPOSURE - The measure of a misfortune, on the off chance that it happens The money related outcomes for the business: income, benefit, dissolvability GEOFF BENSON, ARE, NCSU

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Sources of Risk Weather & other characteristic wonders Local variety in downpour, temperature, and so on. Territorial, national, worldwide climate Extreme (tornadoes, sea tempests, surges, and so forth.) "Innovation" and intensity Changes in your clients\' capacity or readiness to purchase your item Societies mentalities & inclinations Government and different organizations guideline changes Individual human conduct Random mischances GEOFF BENSON, ARE, NCSU

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Managing Risk What are the most essential dangers your homestead business is presented to? How powerless is your homestead business to these dangers (introduction)? What savvy methodologies are accessible to oversee value hazard? What is your disposition to chance? Do you have room schedule-wise, learning and hazard administration abilities? GEOFF BENSON, ARE, NCSU

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Risk Management systems include: Reducing the possibility of an occasion The administration capacity, learning and viability of the maker is the key Reducing the effect if an occasion happens Buying protection Self-protection, which comes in numerous structures including conveying inventories, broadening, keeping up monetary stores, obtaining, off-ranch wage GEOFF BENSON, ARE, NCSU

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Cost:Benefit All danger administration techniques include costs, in cash or time Effectiveness fluctuates among options Financial advantages & costs Time, new learning and abilities Evaluate exchange offs GEOFF BENSON, ARE, NCSU

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Agenda Introduction  Price estimating Price hazard administration Hedging with dairy cattle prospects USDA-RMA LRP Program Cattle fates choices Setting value targets & pulling the trigger Summary GEOFF BENSON, ARE, NCSU

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Price Forecasting Helpful for settling on showcasing and business choices The fates market gives an industry agreement on costs similarly as one year out Takes record of referred to data Changes day by day as new data gets to be accessible GEOFF BENSON, ARE, NCSU

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Cattle Futures The CME Group exchanges two sorts of cows fates – information at www.cmegroup.com Live (or completed or fat) steers fates - 40,000 pound loads of 55% Choice, 45% Select, Yield Grade 3 steers, physically conveyed: Feb, Apr, Jun, Aug, Oct, Dec. Feeder cows prospects are for 50,000 pound heaps of 650-849 pound L&M 1&2 cows, money settled: Jan, Mar, Apr, May, Aug, Sept, Oct, Nov. GEOFF BENSON, ARE, NCSU

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Price Forecasting Use "close-by" prospects contract cost for proposed deal month BUT This is not the NC value "Premise" = fates cost – neighborhood money market cost for comparative steers If premise is unsurprising, then we can utilize the fates business sector to venture nearby North Carolina costs and utilize this to settle on business choices GEOFF BENSON, ARE, NCSU

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Price Forecasting, cont. The cows fates contract may not coordinate the steers you need to offer –need to conform the prospects cost What market premiums & rebates influence the estimation of your steers? Weight Sex Frame Muscle Breed Other, e.g., market channel, truckload GEOFF BENSON, ARE, NCSU

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Price Worksheet GEOFF BENSON, ARE, NCSU

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Feeder Cattle Futures, $/100 lb, 3/26/09 GEOFF BENSON, ARE, NCSU

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Historic Basis The most helpful examination is the distributed NC week by week closeout (money or spot) costs for a specific week or month in respect to the cows prospects cost for the "close-by" month Note NC Auction costs are accounted for week by week in 50 or 100 lb./head increases for little parts CME feeder cows fates contract is for 650-849 lb. M&L1&2 steers in truckload parts Contract months are Jan, Mar, Apr, May, Aug, Sept, Oct, & Nov. GEOFF BENSON, ARE, NCSU

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NC Basis, Avg. 1990-2000 GEOFF BENSON, ARE, NCSU

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NC Basis, 1990-2000 Negative (transportation cost) Varies by business sector, west to east Seasonal: Smaller rebate in spring, popularity for dairy cattle for summer nibbling Larger negative contrasts in fall as steers are sold as grass runs out Historic information on line at: http://www2.ncsu.edu/solidarity/lockers/venture/arepublication/AREno32.pdf GEOFF BENSON, ARE, NCSU

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"Quality" Differences What are the attributes of your cows and how would they influence the value (esteem)? Weight Sex Frame Muscle Breed Other, e.g., market channel, truckload GEOFF BENSON, ARE, NCSU

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Price Differences, NC Graded Sales, M1 Steers, 1991-2001 . GEOFF BENSON, ARE, NCSU

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Price Differences, Graded Sales, M1 Heifers v. Steers, 1990-2001 GEOFF BENSON, ARE, NCSU

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Price Differences, Graded Sales, 500-599 lb. Steers, 1990-2001 GEOFF BENSON, ARE, NCSU

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Angus Braford Brahman Brangus Braunveih Charolais Chianina Devon Galloway Gelbveih Hereford Holstein (dairy) Jersey (dairy) Limousin Longhorn Maine Anjou Nellore Piedmontese Pinzgaur Polled Hereford Selected Breeds Red Poll Sahiwal Salers Santa Gertrudis Shorthorn (double) Simmental South Devon Tarentais Zebu + Crosses & Composites GEOFF BENSON, ARE, NCSU

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Price Differences, Graded Sales, 500-599 lb. M1 Steers, 1991-2001 GEOFF BENSON, ARE, NCSU

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Marketing Options Regular closeout = Base Graded deal Special projects, e.g., Southeast Pride, pre-adapted deals Direct homestead deal (a few alternatives) Retained possession GEOFF BENSON, ARE, NCSU

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Marketing Options Farm circumstance decides open doors and cost: Size of crowd Number of steers available to be purchased Uniformity of steers Market Premium offered Marketing Cost Risk GEOFF BENSON, ARE, NCSU

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Price Worksheet GEOFF BENSON, ARE, NCSU

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QUESTIONS OR COMMENTS ON PRICE FORECASTING? GEOFF BENSON, ARE, NCSU

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Hedging Price Risk Basics of prospects & alternatives Hedging with fates cases USDAs Livestock Risk Protection (LRP) Program Hedging with Options Is supporting for you? What amount do you have at danger? Hazard administration methodologies GEOFF BENSON, ARE, NCSU

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Futures Contracts Sell a Feeder Cattle contract for a particular month at a particular cost - Locks in a cost! "Off-set" your position in the prospects market By giving the agreement a chance to lapse By purchasing back an indistinguishable contract (at or close to the expiry date) At the expiry date the fates cost = the money market (spot) cost GEOFF BENSON, ARE, NCSU

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Futures Contracts Set up an exchanging account with a business Pay a little commission to the representative for the exchange You may get edge calls to guarantee you can cover your position - Deposit trade out your exchanging account when the fates value moves over the value you secured GEOFF BENSON, ARE, NCSU

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Hedging: Example 1 GEOFF BENSON, ARE, NCSU

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Hedging: Example 2, Part 1 GEOFF BENSON, ARE, NCSU

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Hedging: Ex 2, Part 2 GEOFF BENSON, ARE, NCSU

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Hedging: Example 3 GEOFF BENSON, ARE, NCSU

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USDA\'s LRP Program Price hazard protection, pay a premium Can cover every year up to 2,000 head of feeder steers of up to 900 lb. – two weight classes, cows or calves, 3 breeds – Brahman, Dairy, "all other" 4,000 head of 1,000 to 1,400 lb sustained cows Coverage can extend from 70% to 100% of assessed closure value* More adaptable and more straightforward evaluating than supporting with fates GEOFF BENSON, ARE, NCSU

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Example 1, Nash Co, 3/30/09 GEOFF BENSON, ARE, NCSU

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Example 2, Nash Co, 3/30/09 GEOFF BENSON, ARE, NCSU

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Information on LRP Fact Sheets are accessible on line at http://www.rma.usda.gov/domesticated animals/Examples of agreements are at http://www3.rma.usda.gov/applications/livestock_reports/main.aspx A premium adding machine is accessible at http://www.rma.usda.gov/devices/premcalc.html A rundown of LRP protection suppliers is at http://www3.rma.usda.gov/devices/operators/organizations/2008/north_carolinaLPI.cfm. All are from out-of-state GEOFF BENSON, ARE, NCSU

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Options The privilege (yet not the commitment) to purchase or offer a fates contract. Puts a story under the cost yet not a roof – you get the upside A "put"= right to offer & permits the maker to support A "call"= right to purchase & permits the purchaser (e.g., the feedlot administrator) to fence GEOFF BENSON, ARE, NCSU

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Options An alternative is for a particular prospects contract and a particular value The settled upon fates contract cost is known as the strike value The expense of a choice is known as a premium Premiums are built up by open objection pit exchanging and by electronic exchanging, like the way fates costs are set up GEOFF BENSON, ARE, NCSU

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Options There is a scope of strike costs for every fates contract Premiums have 2 segments: Time esteem - pay more for choices on far away contracts, shrivels as the expiry date approaches Intrinsic quality - identified with the relationship between the strike and current cost of the fates contract GEOFF BENSON, ARE, NCSU

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Options In-the-cash - Underlying fates cost is good contrasted with the strike cost Out-of-the-cash - Futures cost is unfavorable versus strike cost At the cash Options consequently settle for money at the time the hidden fates contract terminates GEOFF BENSON, ARE, NCSU

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Feeder Cattle Options Premiums, May Contract, $/cwt., 3/25/09 * No representatives expense or cost of edge ca

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