MANAGING
RISKS AND PROFITS QUESTIONNAIRE The questionnaire is found at: MRP QUESTIONNAIRE |
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| Module 1 1. Government policies in foreign countries have recently changed in ways that affect grain price volatility. True __x__ False____. 2. The increase from the previous year in world coarse grain (feed grain) production in 1996-97 is producing large world carryover stocks. True ___ False__x___. 3. China is no longer a corn exporter. True____ False__x___. 4. For the 1997/98 crop years, grain producers have a choice of insuring bushels per acre or resources per acre with crop insurance. True__x__ False_____. 5. Risk management plans or strategies will eliminate
all risks. True ___ False__x___. 6. The Southern Oscillation Index (SOI) is a meteorological index associated with shifts in normal weather patterns and surface ocean currents. True_x___ False____. 7. In general, research has shown that the SOI is not correlated with crop yield in the major corn-producing states. True_____ False__x___. 8. Besides the periods of time that they cover, the
major differences between short-, medium-, and long-range
weather forecasts are how each is prepared and what
variables are forecast. 9. Climate on a regional scale has not changed during
the 1900s. 10. Due to increasing levels of carbon dioxide, General Circulation Models generally forecast global surface warming and more precipitation. True__x___ False_____. 11. Depending upon the region, General Circulation Model forecasts of future climate may result in either improved or decreased crop yields. True _x___ False____. 12. The most important factors affecting the cash
costs of production for grain producers are:
13. A farmer whose cash cost break-even price is very close to the expected season average market price should use less risky marketing strategies than a farmer with a lower cash cost break-even price. True___x___ False ______. 14. A financial contingency plan for below average
revenue years could include all but:
15 A grain producer's "liquidity gap" is the
difference between cash cost of production per acre
16 Price and yield risks encountered by producers can be estimated using the concept of probabilities (odds) True _x____ False_____. 17 Crop insurance cannot change the probabilities (odds) of losses producers face from yield risks True ____ False __x___. 18 Using pricing tools, i.e., forward contracts, hedging, options, etc., changes the probability of facing very high or very low prices True ____ False __x__. 19 The odds that the yield will be higher than you expect is greater than the odds that the yield will be lower than you expect True ______ False ___x____. 20 The odds are always higher that probabilities will be greater than the expected average price. True ___x__ False ______. 21 The three components of price risk are futures price levels, bases, and price spreads. True __x__ False _____. 22. Basis risk is greater than the risk associated with futures price levels True ____ False __x___. 23. Spreads in the futures markets represent the difference between nearby and deferred futures contracts True __x___ False ______. 24 Basis appreciation or improvement over time
represents the carry-in-the futures market (spread) and
the change in the local cash price relative to the change
in the futures price. 25 Returns to storage should be calculated on expected and actual basis improvement. Changes in the futures prices during the storage period represent speculation opportunities and should not be included as returns to storage. True __x__ False _____. 26 The different ways that a producer can "own" grain to speculate on higher prices include physical storage, owning futures, owning call options, holding minimum price contracts, holding basis contracts, or holding delayed pricing contracts. True __x____ False ______. 27 Traders of agricultural options are not subject to margin calls. True ____ False __x___. 28 Forward pricing can be accomplished with a cash contract or by selling futures ( hedging ). A weak ( wide ) basis generally favors hedging. True __x___ False ______. 29 Other than margin exposure, there are no additional risks when a producer attempts multi-year sales by hedging in the nearby futures contract with the expectation to roll the contract forward into the delivery period(s). True ______ False ___x__. 30 Forward contracts for the sale of grain by someone who sells grain frequently must be signed by the seller in order to be enforced by the buyer of the grain. True _____ False __x____. 31 Verbal promises between the seller of the grain and the buyer of the grain made while contemplating an agreement are enforceable terms of a resulting contract, even if they are not included in the final written document. True __x__ False ____. 32 The farmer’s agent, a marketing consultant, cannot enter into a binding contract on behalf of the farmer. True _____ False _x____. 33 Cash forward contracts for the actual delivery of grain are excluded from regulation by the Commodity Futures Trading Commission: forward contracts are governed by the state’s Uniform Commercial Code. True __x___ False _____. 34 Under the Uniform Commercial Code in some states, farmers are considered merchants. This legal distinction, however, has little relevance to grain contracts. True _____ False __x___. 35 Gains and losses from hedges on a crop are
considered capital gains and capital losses. 36 Gains and losses from speculative activity are
considered ordinary gains and ordinary losses and are
reported the same way as gains and losses on the actual
commodity involved. 37 Hedge and speculative transactions must be identified as such by the producer at or near the time of the transactions. True__x__ False_____. 38 Multi-year contracts for grain (extending two or more years into the future) may be illegal, "off-exchange" contracts. True__x__ False_____. 39 Crop Revenue Coverage (CRC), Income Protection (IP), or Revenue Assurance (RA) guarantees a minimum price. True __x__ False ____. 40 If there is a crop failure, Multi-Peril Crop Insurance (MPCI) guarantees the expected production in bushels. True __x___ False _____. 41 Selling 100% of expected production on futures or forward markets will in general reduce all risk. True _____ False __x____. A Module 7 Question 42 Insuring against revenue losses should cost more than insuring against yield and price losses separately. True _____ False __x___. 43 Year-to-year crop yield variability on my farm
compared to my county average is:
44 Year-to-year variability in crop revenue on my farm over the last 5 years has:
45 The year-to-year variation in gross crop revenue per acre on my farm (without deficiency or transition payments) has been:
46 "Suppose that at planting time you expected to obtain a corn yield in your farm of 145 bu/acre. However, because of weather and pest problems, your actual yield ends up being only 122 bu/acre." A. If you neither insured your crop nor hedged with
yield futures, then your actual yield a. fell short of your expectations by 23 bu/acre. a. 147 bu/acre. 47 If you lean toward being bearish about the corn yield outlook and intend to write a call option on corn yield, you will net a higher corn yield premium by: Answer: A a. writing a call option with a low strike corn yield than by writing a call option with a high strike corn yield. b. writing a call option with a high strike corn yield than by writing a call option with a low strike corn yield. 48 To achieve "insurance" against
lower-than-expected corn yields, you could: a. buy a corn yield call. 49 A corn yield option's value is influenced by: a. the length of time remaining until expiration. 50 A producer sells a put or call in the options
market to establish a minimum price. 51 All agree that a pre-harvest hedge, forward contract, or options contract will help the producer manage price risk. True __x___ False _____. 52 All agree that a pre-harvest hedge, forward contract, or options contract will help producers enhance profits. True ____ False __x___. 53 A producer does not have to be concerned about
production risks when crop insurance products are
incorporated into a marketing plan that manages price
risks. 54 During the 1985 to 1996 time period, there is some statistical evidence that producers could have increased profits by selling corn and soybeans prior to harvest rather than at harvest using combinations of hedges, synthetic puts, and puts. True __x__ False _____. 55 Grain prices offered at or prior to harvest should be used to offset production costs. Prices offered after harvest are payments for returns to storage. True __x__ False ____. Behavioral questions Are you comfortable with the level of crop revenue risk you encounter in your farm business? Yes_____ No _____ Do you analyze your business financial situation annually to determine the level of crop revenue risk protection needed by your business? Yes____ No ____ Do you utilize risk management tools to limit loss of working capital and/or net worth beyond a predetermined level? Yes ____ No _____ To make risk management decisions, I a . contact ask my lender, Operational questions Do you have a printer attached to your DTN unit. Yes _____ No______ If yes, do you print off the lessons. Yes____ No _____ On average, how much do you plan to devote studying each lesson? Time ____________ |
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