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Agricultural Producer Risk Management. Optimizing Client Success Tom Neher VP AgriBusiness AgStar Financial Services November 4, 2011. Risk Management?. What could go wrong?. 2008 High was due to US housing collapse. What if the same happens in China? - PowerPoint PPT Presentation
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Agricultural Producer Risk Management
Optimizing Client Success
Tom Neher VP AgriBusiness AgStar Financial Services
November 4, 2011
Risk Management?
What could go wrong?
• 2008 High was due to US housing collapse. What if the same happens in China?
• Increase US regulations on futures or limits on large speculative traders positions
• Perfect 2012 US/World weather
Current grain market factors
• Volatility and Money flow• China commodity demand• World economic and currency outlook• 2012 weather, Russia, China, USA, Argentina• Soybeans now the bull leader? • US Demand, export and domestic use• US/World 2012 acreage mix
VISULIZE ACTIVITIES WITH TIMELINES!
Pres. Bush boosts ethanol
Energy, food prices rise
Financial crisis
Financial crisis actions
Hurricane Katrina
World crop woes
- Lower U.S. stocks
More plantings needed
- Food & energy prices
- State finance problems
U.S. elections
Dealing with U.S. debt
Earlier timeline?
Tax reform
20142012201020082006 2009 2013201120072005
NOW
Volatility BEFORE
China impact FUTURE
Risk Mgmt.
Market & Policy Volatility: Fasten Your Seat Belts
Index Investment Data - Long PositionsSwap Dealers and Index Traders
175.
6 209.
9
255.
9
175.
6
112.
4
112.
4
163 17
8.5 21
1.2
215.
9
212.
3
224.
4
212.
3 241.
5
254.
7
33.9
39.1 48
.6
31.2
22.6
22.2
27 25.8
31.2
33.6
36.3
41.2
42.3
46.8 54.5
0255075
100125150175200225250275300
12/31
/07
3/31/0
8
6/30/0
8
9/30/0
8
12/31
/08
3/31/0
9
6/30/0
9
9/30/0
9
12/31
/09
3/31/1
0
6/30/1
0
7/30/1
0
8/31/1
0
9/30/1
0
10/30
/10
Bill
ions
of U
S D
olla
rs
All Reported Markets Grains (Corn, Soybean, Soyoil, Chi & KC Wheat)Source: CFTC Index Investment Data Report
FUNDAMENTAL FACTORS IN THE FORMATION OF PRICES
Market
Long term US/World supply needs
Basic supply/ demand input Weather
ChinaInvestments
World Macro-Economic Conditions
Producer Risk Management
Paradigm Shift
• Trading Approach– Predict were the markets will go– Sell the top– Buy the low
• Margin Management– Cost of Production– Financial Goals– Reward the Market
AgStar Margin Manager
AgStar Margin Manager Calculators
• Crop Insurance• Equipment • Facility• Land• Margin Projection
Risk Management Today:6 Tips for Balancing Your Inner Bull and Bear
6 Tips to Finding Balance
1. Weigh the rewards of action versus inaction2. Beware the power of regret3. Keep confidence in check4. Build robustness5. Risk management is the key to leveraging
the opportunities6. Master the practice of “laying risk off onto
others.”
Viewpoint
• Bulls focus on the opportunities• Bears focus on the risk• Takes discipline to find a healthy
balance
