The presenters have collaborated on construction of a spreadsheet system, titled "Milk Marketing Manager," that allows ex-post evaluation of passive milk marketing strategies for the years 2000-2006. Once a strategy is set, the Milk Marketing Manager employs the strategy over the seven year period using daily Chicago Mercantile Exchange settle prices and put option premium data. Program flexibility allows users to:
- employ both forward contracting and PUT option strategies,
- set target strike prices, maximum premium, and the range of months for PUT option purchases,
- set forward contracting trigger prices at three different levels for each month, the percentage of production to be contracted at each level, and the range of time that forward contracts will be implemented prior to market month, and
- set the timing for marketing decisions – daily, weekly, or every two weeks.
Results visually compare with and without marketing outcomes including overall revenue, average hundred-weight price, and measure of dispersion over the seven year period.
There are several educational uses for Milk Marketing Manager. For example, the automatic implementation of a passive strategy is very successful in reducing price variability, especially downside variability. However, there is often no change in the overall average price over a long-run period of time. If increased price is the desired goal, then much more daily involvement is needed to adjust for current outlook, moving in and out of marketing positions, etc.
Milk Marketing Manager is a great hands-on tool to facilitate learning of price risk management and marketing.