Iowa Public Television

 

Teaching Risk Management

posted on May 25, 2001


Even with the billions the government spends and will spend on farm subsidies, it is still critical that farmers and ranchers effectively market livestock and commodities.

While government subsidies provide an income stream, they do not guarantee profit. But a combination of subsidy and prudent marketing can do much to buttress the bottom line. Moreover, should the level of government support subside, as it might under the next farm bill, it will become more important for farmers to develop and implement market plans.

To that end many producers are trying to learn more about marketing. One of the best efforts can be found in Texas. There an ambitious multi-sponsored educational program is focused on turning out Master Marketers. Tyler Teske reports.

 

It has long been known by agriculture experts that there are many ways for farmers to minimize financial risk. The problem has always been how to teach producers to use ALL of the available risk management tools.

With the introduction of Freedom to Farm, the importance of marketing agricultural products was thrust to the forefront.

Stan Bevers, Texas A&M Extension Economist: "…You're probably going to see and increase in marketing today, already seen that through the '96 Farm Bill and that's just going to continue to happen over the next few years. If they don't have the marketing or the price risk management, or the risk management as a whole set of skills, it's going to be very difficult."

Stan Bevers is one of a group of Texas A&M extension educators who saw the need to change their approach to teaching risk management.

An interactive seminar called the Master Marketer Program was created. Instead of the more traditional day-long lectures that heap information on producers and provide little follow-up, the Master Marketer Program is comprised of four, two-day sessions over the course of six weeks. The extended time frame allows for intense instruction on a variety of risk management topics including technical analysis, market psychology, futures and options, and crop insurance.

The lecture format is still retained for part of each training session. But, the program also utilizes less traditional teaching tools such as the Packer Feeder game.

(slug Packer Feeder game)

It's just one of the simulations used to help participants apply what they have learned in the lecture sessions to a real world scenario. The role-playing simulations are often rated as the most beneficial learning experience of the entire program.

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The culmination of every session is the marketing plan. Participants gather according to their type of operation and devise detailed risk management plans. Each session, alterations are made to the plans to incorporate any newly learned risk management tactics.

Bevers: "You base your marketing plan on what your expected production is. If drought comes in and wipes that out, that's after the fact. But prior to even planting, when some of the highest prices can occur throughout the year, do I need to be taking positions, right now, some type of strategy, from a pricing standpoint, based upon, what I expect to do."

Attending the sessions is only part of the program. Participants are expected to return to their communities and start marketing clubs to pass along their risk management skills to other producers. Underwriting for the Master Marketer Program is provided by a number of major Texas agricultural groups in large part to encourage the development of more marketing clubs in the state.

Stan Bevers: "I live by the adage that people rise or fall to the levels of expectations that are placed upon them. And we place high expectations upon these guys. Based on the ninety-nine post training survey results, 73% of them said that they actually went out and attempted to work with a marketing club. We asked a separate question, Were you successful in that? And 64% of them say, Yeah, we were successful at that."

Both Bedford Jones and his father Frank have been through the Master Marketer program. Frank owns and operates the Cleveland Ranch. He has always raised cattle, but diversified into row crops in 1969 when his master's thesis showed some of his land would generate more income growing cotton instead of cattle. Bedford attends to most of the cattle ranching duties while Frank takes care of the cotton and marketing.

Frank Jones, Cleveland Ranch: "When you are running a large number of cattle, or having a lot of cotton, there's not very much of a market need on the downside to really hurt your cash flow. So, my incentive now, is not to sell right at the top of the market, certainly, because when you do, you always lose, but it's still above the 50% middle of the market and that way, you…over a long period of time, your cash flow, and your profitability, I think, is helped a good deal."

Like most producers who participate in the program, Frank has increased his activity in the markets. The risk management training reduced his anxieties about forward contracting and he has been taking advantage of the currently active cattle market on roughly a weekly basis. An increased comfort level with the use of marketing tools has proven financially rewarding for many Master Marketer participants. On average, the more than 400 producers who have been through the program have seen an increase in net prices of roughly 32 thousand dollars, or eight percent.

Frank Jones, Cleveland Ranch: "It gave you a confidence to try some of these marketing moves which these professors had talked about in the master marketing program. Try them on a small scale and see how they work and that increases your confidence about how you can market your products."

Next week, Market to Market will look at how two Master Marketer trained producers used their knowledge to achieve success following different paths.

For Market to Market, I'm Tyler Teske.

 


Tags: agriculture news