A34-Lancaster Farming, Saturday, August t, 1998
Weighing Your Options
Agriculture is one o( the few
industries in the world where pro
duccrs do not know then final
selling pnee until alter (hen goods
.ire sold This is why tanners ate
sometimes called 'price lakcis'
ralhei than "price makcis As
margins loi returns continue to
shimk ninny tanners arc begin
ning to cxploie futures markets
and hedging as wavs to help stabi
lize their returns Puce volatility
and uncertainty arc often things
that not only producers, but also
uscis of commodities attempt to
minimize
One ol the newest players in
the commodity tree markets is the
dairy industry As the government
price support systems begin to lie
phased out, daily tanners will need
to become awaic of their allcma
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Delaware
Hooter Equipment
Middletown DE * 410/341 4028
Jays Barns
Fronkford DE * 302/732 6040
Maryland C B Hooter
Georg* Hines Equipment Intercourse PA • 717/766 8231
Union Bridge MD • 410/775 2629
Cuds Welding
Potomac Valley Supply Rome PA • 717/24 7 2539
Hagerstown MD • 301/223 6677
Walter G Coale Inc
Churchville MD* 410/838 6470
New Jeraey
Brodhecker Farm
Newton NJ • 201/383 3592
Quality Structures
Flemmgton NJ • 908/782 7408
lives For dairy fanners, the prac
tice ot using the lulurcs and op
tions markets to protect against
low milk prices is known as hedg
ing
Richard Mollitor, an agncul- (
ture risk management specialist at
the Chicago Mercantile Exchange,
defines hedging as the practice ol
taking a position in the futures
and/or options market opposite to
that in the cash market The op
portunity includes locking in prof
itable selling prices (by selling fu
tures contracts) and establishing a
minimum selling price while still
allowing you to benefit from a
using market (by buying Pul op-
tions) The Put option becomes
your insurance' against a dra
matic downturn m the price of
Richard Kenwodhy
Bernardsville NJ • 908/766 0063
Pennaylvanla
BlueMt Diesel
New Tripoli FA *6lO/298 3483
Ert <S Henry Equipment
New Berlmville PA *215/367 2169
Fields Implement
Eighty Four PA * 412/222 1154
l-ARMCO MFG.
2937 Inshtown Road • Ronks, PA 17572 • 717/768-7769
Here is an example from one of
Monitor's actual accounts of how
hedging can woik tor a dairy
farmer On April 1. a dairy farmer
buys a June 12 00 BFP Put op
tion lor SSO cwt (the cost was
$5OO per 100,000 lbs of milk)
At the lime, the June BFP futures
price was II 07 cwt The next
fix c weeks saw dairy prices drop
significantly, and by May 7, the
June BFP futures were at 10 82
This 85-cent drop (1167-10 82)
was responsible for the farmer's
option price increasing to a value
of $1 16 per cwt On May 7, the
Put option was sold at I 16 to re
alize a profit of 66-cents per cwt
(I 16-50) With a commission
cost of $45 per contract (4 5-eents
per cwt ) the net profit was 61 5-
ccnls per cwt
The farmers who understood
the market were able to realize
61 5-eents per cwt more revenue
than the fanner who chose not to
hedge their milk production As
milk supports are eliminated, it
will be more important than ever
that small to medium sized farms
arc able to maximize their returns
The need to have a fixed price sev
eral months out will eventually
supersede the farmers' reluctance
and fear of becoming involved
not.
Dealer Today
George Gross Inc
Dover PA • 717/292 1673
Gunther Heussman Inc Longeneckers Inc
Emmaus PA • 215/965 5203 Williamsburg PA *Bl4/793 3731
Glenn Wagoner
Darlington PA • 412/827 2184
Kellers Farm Machinery
Quakedown PA *215/536 4046
Lapps Barn Equipment
Gap PA *717/442 8134
Leaders Farm Equipment
Everett PA* 814/652 2809
milk Just like insurance, you
hope you II novel need it but il
you do you'll be glad you took the
tune to figure it out
According to Mollitor, dairy
futures arc beginning to gain more
widespread acceptance The big
gest challenge is a lack of under
standing based on misconceptions
of the futures market
Lebanon Valley Implement
Richland PA • 717/866 7518
Marshall Machinery
Honesdale PA • 717/729 7117
Newswanger Machinery
Kutztown PA • 610/683-5970
Reiffs Farm Service
Shippensburg PA • 717/532 8601
Romberger Farm Supply
Khngerstown PA * 717/648 2081
Rovendale Ag & Barn
Watsontown. PA • 717/536 9564
Wyn Koop Farm Equipment
Marlon Center PA • 412/397 4960
One way some dairy farmers
will be able to explore the com
modities markets is a pilot pro
gram announced by United States
Secretary of Agriculture Dan
Ghekman called the Dairy Op
tions Pilot Program (DOPP)
Farmers m selected counties will
be offered a financial incentive to
use options to manage their price
risks Producers who participate m
the program will be trained on
how to use the commodities mar
kets also
As farmers become exposed
m
BUILDINGIHE FUTURE
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Abbottstown Jonestown Ronks
MESSICK’S
RD #1 BOX 255 A
717-259-6617
Allentown
LEHIGH AG EG. INC
6670 Ri ' Rd
610-398*2553 BOMBERGER'S LAWN
1-800-779-3616 & GARDEN
_ .. . Lititz: 717-626-3301
Carlisle Lebanon: 717-272-4155
TRI-BORO ,
CONSTRUCTION SUPPLIES <-oysviue/«
1490 RITNER HWV
1-800-248-6590
Dallastown
CONCRETE, INC.
435 Locust St
717-246-3095
1-800-632-9018
East Earl
GOODS LAWN &
GARDEN CENTER
Route 23
717-445-4490
Elizabethtown
MESSICK’S
Rheems Exit*Rt 283
717-367-1319, 717-653-8867
Ephrata •
WES STAUFFER
ENGINES & EQUIPMENT
23 Pleasant Valley Rd
717-738-4215
ohrata. Hershi
HOLLINGER’S LAWN &
Ephrata, Pa. 717-859-5455
717-656-2710
Hershey, PA 717-533-4060
Gap
GAP
POWER EQUIPMENT
Corner of R 1 30 4 Rt 897
Hummels Wharf n CU ™ G }L„ nFF R pbffk
hiimmfi ’<s TFVArn RENTAL CENTER DEER CREEK
HUMMEL S TEXACO Rt EQUIPMENT, INC.
717*743*7459 717 " 336 ' 3945 720 Whnlor School Rd
717 743 459 goi . 879 . 5090
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more and more to the ups
downs of a free market econoi
futures and options can offer si
insurance against a dramatic do'
turn m the market They may
keep you and your family on
farm
Feel free to send your co
ments and ideas to Jim Shirk
The Lancaster Chamber of Coi
merce & Industry, PO Box 15f
Lancaster, PA 17608-1558,
email at jshirk@lcci com or c
him at (717) 397-5551
BLUE MOUNTAIN
ENTERPRISES, INC,
Fit 72 South
717-865-2994
Lititz/Lebanon
GUTSHALLS INC.
Loysville - PA - Carlisle
717-789-4343 717-249-2313
iAlisterville
C.B. HOOBER & SON
717-463-2191
Oxford
DEER CREEK
EQUIPMENT, INC.
6600 Limestone Rd
610-932-8858
Palmyra
HERR’S REPAIR
SHOP
RO 2, Box 115 A
717-838-1549
Palmyra
WEAVER’S LAWN &
GARDEN
740 W Main St
717-838-5999
Peach Bottom
A.K. SAW SHOP
214 Peach Bottom Road
Pequea
DREXEL AUTO SUPPLY
333 Steinman Farm Road
ockeysville MD
SUBURBAN SALES
10757 York Rd
410-785-2277
Whiteford MD
717-284:2916
mr
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TfIHL
TERRITORY
A & B SALES
& SERVICE
370 Newport Road
2 Miles South of Rt 23
Along 772 Thru Monterey
Schaefferstown
MARTIN’S
EQUIPMENT CO.
Rt 501 1 1/2 Miles South of
Schaefferstown, PA
717-949-6817
Shartlesville
MOUNTAIN VIEW
SUPPLY, INC.
(Formerly Shartlesville
PO Box 529
610-488-1025
lensbun
LEINBACH
FARM EQUIP.
1120 Rltner Hwy
717-532-5511
Tamaqua
CHARLESS.
SNYDER* INC.
RD 3
717-386-5945
Waynesboro
QUINCY TRUE VALUE
HARDWARE
Rt 997 in Quincy
717-749-3653
Hagerstown. MD
EBY’S LAWN &
GARDEN
16409 Falrvlaw Road
301-733-4158
IWI