Dairy Price Risk Management:
Cooperative Extension – Ag and Natural Resources
1
Farm and Risk Management Team
Session 1: Risk – What Is It? How Do You Feel About It? What
Can You Do About It?
2

What we’re going to cover in this
program

What is your personal attitude
toward risk

What kinds of risks you face in
your farming enterprise and how
they are addressed

Milk price volatility: Incidence and
impacts
Session 2: What’s a Good Price? What Do I Need to Meet My
Business and Family Goals?
3

Calculating cost of production

“Costing out” longer-term
business objectives and personal
goals.

Prioritizing goals in a way that
defines minimum, basic, and
optimistic price objectives

Thinking about a marketing plan
Session 3: What’s a Good Price? What Does the Market Say?
4

Basic elements of federal milk
marketing order pricing

How your milk check is “built”
from the class III price.

How markets for class III
products work.

Basis and basis risk. How to
estimate basis.
Session 4: What’s a Good Price? How Do You Know What the
Market Is Saying?
5

Historical trends and seasonality
in milk prices

Factors affecting prices, basis
and basis risk

Major sources of outlook
information and how they can be
accessed

Interpretation -- what does the
information mean?
Session 5: Price Risk Management Strategies I – Futures
Markets
6

futures markets – purpose,
mechanics, history, terminology,
regulation, brokers, etc.

How to read and interpret futures
price quotes

The short hedge for protecting a
milk price

The long hedge for protecting an
input price
Session 6: Price Risk Management Strategies II – Options on
Futures Contracts
7

Options markets – mechanics
and terminology

Factors influencing option
premiums

How to read and interpret options
quotes

Using put options to set price
floors

Comparing futures and options
Session 7: Price Risk Management Strategies III – Cash Forward
Contracts and Advanced Options Strategies
8

Cash forward contracting. How
plants use futures and options in
contracting with farmers for fixed
prices and floor prices

Combination strategies: Using
puts and calls together with
futures
Session 8: Pulling the Trigger
9

Strategy guidelines – if I see this,
then I should do that.

What is your plan? WRITE IT
DOWN

Where do we go from here?