MANAGING CHANGE-MANAGING RISK:
A Primer for Agriculture

Forword Table of Contents List of Participants Ordering Information


Foreword

We are pleased to present this report titled Managing Change-Managing Risk: A Primer for Agriculture. It's part of the Iowa Economy in Transition series from the Iowa State University Department of Economics.

The Iowa economy is undergoing major changes in response to national and global economics, plus social, environmental, climatic and technological forces and policies. This report examines changes in the agriculture industry that are impacting the risk environment for farmers. And it offers a wealth of information on strategies farmers can use to better manage the increasing risk they face.

Changes in the risk environment for Iowa farmers are being driven by several factors. For instance, the Federal Agricultural Improvement and Reform Act is shifting income risk from the federal government to the farmer. Changing global trade patterns and grain reserve policies are causing greater price volatility, resulting in greater price risk for the farmer. Changing climate patterns are translating into greater yield variability, increasing yield risk for farmers.

At the same time, new instruments are now available or are being developed that farmers can use to manage risk. For example, revenue insurance and variations on delivery contracts are providing new risk management tools for farmers.

To see if this report offers something of value to you, turn to Page 7 and read the story Assessing the Alternatives. Look at the histograms that accompany the story. These show the distributions of expected profits for a representative Iowa grain farmer under the various options described in this publication. You'll see some strategies expose the producer to more risk. You'll also see the probability of making larger profits is higher with some strategies than with others.

John Miranowski
Chair, ISU Department of Economics

Table of Contents
FOREWARD
1. THE INCREASING NEED FOR RISK MANAGEMENT 5
2. ASSESSING THE ALTERNATIVES 7
3. USING GRAIN CONTRACTS FOR RISK MANAGEMENT 11
4. SPECIALTY MARKETS BRING DIFFERENT RISK MANAGEMENT NEEDS 15
5. USING FUTURES MARKETS FOR RISK MANAGEMENT 19
6. USING OPTIONS ON FUTURES CONTRACTS 23
7. COMBINING FUTURES CONTRACTS AND PUT OPTIONS 27
8. CROP INSURANCE CHOICES FOR 1997 29
9. A NEW TOOL IN THE TOOLBOX: REVENUE INSURANCE 33
10. RISK MANAGEMENT STRATEGIES THAT CAN INCREASE RISK 35
11. PRICE RISK MANAGEMENT FOR CATTLE AND HOG PRODUCERS 39
12. MANAGING LIVESTOCK RISKS: INPUT PRICES AND PRODUCTION CONTRACTS 43
13. GAINS FROM IMPROVED RISK MANAGEMENT 45

List of Participants
Bruce A. Babcock
C. Phillip Baumel
William Edwards
Roger Ginder
Dermot Hayes
Robert Jolly
John Lawrence
Sergio Lence
John A. Miranowski
Robert Wisner

Ordering Information

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