Reports & others

Author: David Stack, Managing Director, Agrimax.

The author presents a practitioners view of modern Agricultural Financial Risk Management (AgFRM) and its use for income volatility ‐ reducing strategies, which are a win‐win for producers and consumers.

• The natural or native volatility of individual commodities and their root characteristics and causes are discussed.
• A discussion of how implied volatility is priced and managed is presented along with a challenging review of a series of commonly held views on how volatility is calculated. The author concludes this is often from a marginal price series of market‐clearing and consequently highly volatile farm‐gate prices, exaggerating the true volatility of food prices.
• It is argued that policy makers must make a more determined effort to capture and report spot and forward prices to further the development of financial risk management and that it is only through a whole supply chain that the goal of reducing income volatility can be achieved - quite separate from observed historic price volatility.
• The role of academic, research, regulatory and market supervisory institutions is discussed and recommendations are made.

Research Topics: Energy Markets’ Volatility Financial Risk Management