By Mary Hightower
Uncertainty — or risk — permeates every stage of a farm commodity’s life from the time seed hits the soil to its ultimate use as food, fuel or fiber.
Some of the risks — forces of nature such as weather, insects and diseases — are familiar. However, there are an infinite number of factors that can introduce risk, such as war, a closed bridge on a major interstate, or policy changes in the United States or abroad.
Increasing understanding of the risks related to commodity pricing is the mission of the Fryar Price Risk Management Center of Excellence.
“Any type of business hates uncertainty, and price risk is one of the costliest forms of business uncertainty,” said Andy McKenzie, professor, Fryar Endowed Chair and associate director of the Fryar Price Risk Management Center of Excellence.
“Grain farmers face price risk with respect to the crops they produce,” he said.
“Before harvest, they don’t know what price they’ll be able to sell their grain for — that’s price risk,” McKenzie said. “If they don’t sell at harvest but instead choose to store their grain, they don’t know what price they will eventually sell their grain for. That’s price risk too.
“And given grain prices change a lot over time, this is a lot of risk,” he said.
Source : uada.edu