Farmers Advised to Hedge Crops Cautiously
by Blair Fannin, AgNews
April 16, 2008

COLLEGE STATION — Extremely volatile commodity prices due to high energy costs has led to the suspension of forward price cash contracts – a marketing tool used among farmers to reduce price risk and increase profits each year, according to Texas AgriLife Extension Service economists.

The suspension of forward contracts is a result of grain elevator operators’ and merchants’ inability to cover margin spreads, said Drs. Mark Welch and John Robinson, economists in College Station.

Corn, wheat, cotton, soybeans and other commodities have eclipsed record prices this year as a result of increased biofuel demand, acreage adjustments, production shortfalls, tight carryover stocks and speculative investment, Welch said.

“Many farmers wanting to lock in prices at these historic levels are turning to forward price contracts,” he said.

Forward price contracts of a growing crop establish a “price and delivery provision,” Welch said, which transfers price risk from the producer to the writer of the contract.

“(This is) usually a grain elevator or cotton merchant,” Welch said. “The elevator or merchant may then transfer this price risk to speculators by hedging in the futures market.”

A contract hedge consists of selling an equivalent amount of cotton or grain in the futures market to cover inventory or forward contracted commodities that they hold, he said.

“If prices are lower at harvest, gains in the futures market offset the price difference between the higher contract price and the current cash price, protecting the elevator or merchant’s price margin,” Robinson said. “If prices go up at harvest, losses in the futures market are offset by the ability to sell the forward contracted grain or cotton at a higher price.”

Those participating in the futures market must have enough margin money deposited to cover potential losses. The margin is balanced daily and those profits accrued in excess of the margin requirement may be withdrawn.

“Any losses that draw the margin account below the minimum maintenance level must be offset by additional deposits to restore the account to its initial balance,” Welch said.

Those that fail to bring the account up to the initial required level results in liquidation of the position and the holder of the account must absorb all losses.

As a result of rapid escalation of commodity prices, elevator and merchants who wrote forward price contracts are facing “enormous proportions,” Welch said.

“Wheat that was hedged at planting last October for a then all-time record high price of $7 a bushel has incurred margin calls of $6 per bushel or $30,000 per contract.”

Forward-contracted corn last fall has increased in price by more than $2 a bushel, he said.

“The margin requirement to maintain each of those contracts is now around $10,000,” he said. “For a medium to mid-sized grain elevator to maintain their hedged positions, they have had to deposit millions of dollars in margin money. Add to this the interest cost of funds required to maintain margin requirements and the financial burden of offering and maintaining forward contracts is considerable.”

Farmers are now left with the option of either hedging their crops by selling futures contracts, buying options or a combination of the two, Welch said.

“The impact of severe margin calls on the commercial sector should give growers renewed pause about the margin risks of hedging via selling straight futures,” he said. “Many producers are uncomfortable or unfamiliar or had unprofitable experiences with these marketing alternatives. It’s important that a prospective hedger learn all they can about these markets and understand the risks and rewards before initiating a hedging program.”

In order for producers to stay updated on changing market conditions, Welch and Robinson advised them to have ongoing communication with lenders and the grain or cotton merchants.

“Working together, it’s possible to forge an effective strategy to manage price risk even in these volatile markets,” Welch said.

Commodity organizations representing grain and cotton industries have complained to the Commodity Futures Trading Commission the markets are no longer working as intended. A public hearing is scheduled April 22 in Washington as the Commodity Futures Trading Commission will hear from representatives of the U.S. Department of Agriculture, the commodity exchanges, traders, merchants and producers.

“Some of the topics to be addressed are the lack of convergence between cash and futures markets, the impact of higher margin requirements, and the role of speculative investment in the commodity markets,” Welch said.

Entrepreneurship, Energy Business Opportunities Conference
by Blair Fanin, Paul Shattenberg, AgNews
March 17, 2008

SAN ANTONIO — Rural-based alternative energy opportunities, entrepreneurship and next-generation food start-up businesses will be part of the Envision08 Conference scheduled for April 23-25 at the Marriott Rivercenter in downtown San Antonio.

Attendees will learn how to identify the next big business opportunity and develop strategies to overcome competitive challenges, as well as hear the first-hand experiences of already successful entrepreneurs, said organizers.

Among other topics, the conference will address next-generation business opportunities in rural entrepreneurship and natural resources, including renewable energy, said Dr. John Nichols, department head for agricultural economics at Texas A&M University.

“We will be presenting rural entrepreneurship topics in a context of nationally known and respected entrepreneurial leaders and business experts who are not typically featured at agriculture conferences,” Nichols said.

The conference, developed by the Texas A&M University’s Center for New Ventures & Entrepreneurship, will bring together the best minds in the nation to give participants practical answers needed to compete and “claim victory” in the marketplace, he said.

“Envision08 will give entrepreneurs and business leaders a more holistic view of business and a deeper appreciation of what goes into making a company successful,” said Richard M. Scruggs, director of the center. “Participants will be inspired and encouraged by learning from those who have created their own successful companies.”

General session speakers will include Marcus Buckingham, researcher with the Gallup Organization and bestselling author on business management; Guy Kawasaki, managing director of Garage Technology Ventures, author and columnist for Entrepreneur Magazine; Steven R. Covey, author of “The 7 Habits of Highly Effective People” and other bestselling books; and Peter W. Schutz, former CEO of Porsche A.G., and now author, lecturer and co-founder of Harris and Schutz Inc.

Rural entrepreneurship-related sessions will include: -- “Rural-Based Alternative Energy Opportunities: Land-based and Wind,” a panel discussion moderated by Joe Outlaw, Texas AgriLife Extension Service economist, with discussion leaders James Fuqua, cattle entrepreneur, and Jeff Plowman, Austin Biofuels. -- “New Faces of Natural Resource-based Rural Entrepreneurship,” facilitated by Greg Clary, AgriLife Extension economist, with discussion leaders Carol Davis, Blisswood Bed-Breakfast & Spa and Don Pullum, Sandstone Cellars Winery. -- Opportunities in Next Generation Foods -- Local, Organic and Natural. Session content will include how to build brand equity quickly, create a competitive difference, and recruit and keep top talent.

Nichols said those who would benefit from attending the conference include key executives and decision-makers in entrepreneurial and high-growth companies, members of corporate and local government business development teams, including those in rural and semi-rural areas, consultants, advisors, and university faculty interested in entrepreneurship.

“Envision08 will give participants the opportunity to learn from top experts and expand their personal network,” he said. “They will learn on at least three levels: company leadership, company performance and personal leadership.”

Conference registration includes access to all general sessions and workshops, all meals during conference hours, entertainment and networking sessions, and access to business development resources available through the Texas A&M Center for New Ventures & Entrepreneurship.

More information on the conference and registration can be found at http://www.envision08.com .

To become a sponsor or exhibitor, contact Don Newell at 832-746-7650 or exhibitor@envision08.com .

Drought Management to be Focus of Field Day
by Steve Byrns, AgNews
March 20, 2008

SAN ANGELO —The Texas AgriLife Research and Extension Center at San Angelo and the National Drought Mitigation Center will sponsor the Natural Resources Field Day from 8:30 a.m. until 4:45 p.m. April 24.

The field day will be held at the center located north of San Angelo on U.S. Highway 87.

Marvin Ensor, Texas AgriLife Extension Service regional program director at San Angelo, said the field day is meant to showcase existing management tools and reintroduce some old standby practices available to producers facing drought.

“The National Drought Mitigation Center also wants to give producers and agency personnel an opportunity to provide real world input on new tools they are currently working on,” Ensor said.

“A year ago we decided to curtail our annual natural resource field days and hold them only when conditions or issues warranted them,” Ensor said. “With record-setting wildfires flaring up across the state and prolonged dry weather predicted, that time is now. Our goal is to arm producers with the most up-to-date knowledge available to see them successfully through these natural disasters which occur all too frequently in the West Texas ranching business.”

Morning field day topics will include:

-- Drought Update: Climate Services and Monitoring Tools Available from National Weather Service, San Angelo.

– Drought Impact Reporter: Putting a Face on Drought.

– Developing a Vegetation Drought Response Index: Monitoring Vegetation Stress from a Local to National Scale.

– Grazing Management after Fire and Drought. Afternoon topics following a catered lunch include:

– GreenLeaf: Taking a Google Approach to Agricultural Decision Support.

– Managing Risk on the Ranch: A Guide to Help Better Prepare for and Respond to Drought.

– Building a New Drought Monitor/Decision Support System: Putting it All Together.

– Rangeland/Pasture Drought Insurance Program update.

– U.S. Department of Agriculture Programs Available for Ranching Losses.

The field day will conclude with an open discussion and comment period.

Individual registration which includes lunch is $10 by April 18 and $25 thereafter.

To register or for more information, call 325-653-4576.