Milk Marketing Manager

1. Milk Marketing Manager A Spreadsheet for the Ex-Post Evaluation of Milk Marketing Strategies Kevin Bernhardt, UW-Extension and Margo Rudstrom, West Central Research and Outreach Center, Univ. of MN

2. Today’s Presentation • Ex Post not Ex Ante • Milk Marketing Manager Spreadsheet – What is it, What does it do • Demonstration • Some Results • Teachables • Cautions • Q & A

3. Today’s Presentation • Ex Post not Ex Ante • Milk Marketing Manager Spreadsheet – What is it, What does it do • Demonstration • Some Results • Teachables • Cautions • Q & A

4. Milk Marketing Manager – What is it, What does it do • Calculates what the results would have been if passive Class III marketing strategies had been implemented from 2000-2006 • Total revenue • Price • Variability • Allows the testing of variable strategy options including PUTS, Forward Contracts and combinations • Allows the testing of market timing

5. Strategy Options • PUTS • variable strike prices and premiums by month • variable marketing window • Forward contracts • three different trigger levels per month • variable levels of contracting at each trigger • different forward contract specifications • marketing window • Other • desired benchmark price • how often marketing takes place

6. Today’s Presentation • Ex Post not Ex Ante • Milk Marketing Manager Spreadsheet – What is it, What does it do • Demonstration • Some Results • Teachables • Cautions • Q & A

7. Today’s Presentation • Ex Post not Ex Ante • Milk Marketing Manager Spreadsheet – What is it, What does it do • Demonstration • Some Results • Teachables • Cautions • Q & A

9. FC 100% at $10.00 Trigger

10. $11.00 PUT for $.15

11. $12.00 PUT for $.25

12. $13.00 PUT for $1.75

13. FC 10%, 15% and 25% at 50th, 70th and 90th %-tile

14. FC 10%, 15% and 25% at 50th, 70th and 90th %-tilePlus an $11.00 PUT for $.15

15. FC 10%, 15% and 25% at 50th, 70th and 90th %-tilePlus an $12.00 PUT for $.25

16. Some Results

17. FC 10, 15 & 25% at 50th, 70th & 90th %-tile Contract purchases stopped 15 days prior to market month and triggers checked daily.[-$23,521 mrkt gain] Contract purchases stopped 90 days prior to market month and triggers checked every 10 days[-$6,890 mrkt gain]

18. Marketing Gain FC 10, 15 & 25% at 50th, 70th, & 90th %-tile

19. Today’s Presentation • Ex Post not Ex Ante • Milk Marketing Manager Spreadsheet – What is it, What does it do • Demonstration • Some Results • Teachables • Cautions • Q & A

20. Teachables • How PUTS, Forward Contracts or a combination of both work • Visual of results • Specifications • Historical premiums • Historical prices • Historical price variability • Historical price benchmarks and seasonality

21. Teachables • Impact of employing simple passive strategies: • Easy to implement • Other than up front time, virtually no management time is required • Accomplishes the goal of reducing price risk/variability • The more aggressive your marketing, the more price variability is reduced • Not a way to achieve a higher price • Result in periods of gain and periods of losses • And yes, they are losses!!

22. Teachables • Impact of how often you check markets • Impact of how close to contract month you take marketing actions • Impact of changing your PUT marketing window • Marketing for a higher price is a wholly different exercise than marketing to reduce price risk!!

23. Reduce Price Risk- Easy to do (passive)- Effective- Have to maintain long-run focus Level 1 Increase Price- Difficult (active)- Time consuming- New set of skills required- Have to maintain long-run focus Level 2 Think of Marketing in Two Levels

24. Cautions (Even Danger!) • This is a Teaching Program not a management decision-making program • Research indicates that trading systems based on historical data are no guarantee of future performance. • Park and Irwin. The Profitability of Technical Trading Rules in US Futures Markets: A Data Snooping Free Test (May 2005).

25. Park and Irwin, 2005 • “Nonetheless, the evidence provided by this study suggests a great deal of caution should be used in presenting to farmers any form of technical analysis as an effective method of predicting price movements”

26. Program Status • Program is large • Three linked spreadsheets, 24.4 megabytes • Too much to email • Works well on CD • Need to make it user friendly • (this summer’s project) • Stand-alone software perhaps in the future • If you want it, let me know!

27. Program Status • If you want it, let me know! Kevin Bernhardt 608 342-1365 bernhark@uwplatt.edu

28. Questions?