Business Structures, Markets, and Risk Management

Transcript:Business Structures, Markets, and Risk Management:
Business Structures, Markets, and Risk Management Lesson 4: Cooperatives Sarah McKay, Graduate Student, Department of Agricultural and Applied Economics, Virginia Tech Kristin Carr, Agriculture Teacher, Riverheads High School, Augusta County Public Schools Marie Rothwell, Virginia Cooperative Extension Agent, 4-H Youth Development, Augusta County Shannon Wiley, Graduate Student, Agricultural, Leadership, and Community Education, Virginia Tech Hannah Scherer, Assistant Professor and Extension Specialist, Agricultural, Leadership, and Community Education, Virginia Tech Overview of Today Recap from last lesson All about cooperatives Cooperative simulation activity Class discussion Recap Questions recap What is risk? Risk: chance or probability of loss In business: the chance that the business’s actual return will be different than expected What are some key factors that make agribusiness risky? • Prices • Weather • Disease • Consumer preferences/taste • Economy • World trade (imports and exports) How do we manage risk? Insurance Pesticides/herbicides Irrigation Price Risk Management Result of volatility − how prices vary from the average or mean price over time due to factors that affect risk, such as weather, disease and consumer preferences. Price Risk Management in Agribusiness Forward contracts Private agreement on a price for a future delivery Examples: seed, feed, hay Individualized Futures contract Publicly traded Examples: corn, live cattle, oil Standardized quantity, quality, time, and place Organized futures exchange How do we enter a futures contract? Chicago Mercantile Exchange LONG: buyer, accepts and purchases in future SHORT: seller, delivers and accepts payment in future Historical prices All about cooperatives What is a cooperative? Business owned collectively Not owners, but members Owned jointly by all its members who share profits equally Profits = dividends Examples: Farmer-owned cooperative Utility cooperative Financial cooperative Benefits of Cooperatives Obtain services not available to smaller businesses Quality supplies at the right time Market access Economies of size Bargaining power Cooperative Functions Marketing cooperative − maximize return received for crops and goods, value adding Purchasing cooperative − used to gain access to affordable and quality supplies Service cooperative − access to affordable and quality services People: 4 Key Elements Members − patronage and capital investment Adopt and amend articles of incorporation and by-laws Elect/remove directors Decide on future of cooperative/evaluate performance Board of directors & officers Users of services and represent other members Set objectives for cooperative Hire manager, determine salary Business strategies Manager Sets operating budget with help of board Employees Role of Officers President Presides at meetings and watches over affairs