production variability or price variability

As a commodity producer what do you consider is the most important to manage – production variability or price variability?
Your discussion should detail an overview of production risk and price risk, what part of the risk can be managed, how it can be managed, and how they interact. Does your response depend on the commodity in question?
This task is designed to develop your understanding of what you consider are the major features of marketing risk. It allows you to reflect on the theory and apply it in your own perspective.
Please note there is no right or wrong answer, rather marks will be awarded on the presentation of your commentary and any supporting references, documents or examples that you may have. You are encouraged to incorporate existing knowledge you may have from the subjects of Risk Management, and/or Marketing Management.
Task 2 (20 Marks)
Consider that you are a commodity producer of at least two commodities. You may choose wheat as a commodity; however, given this is our subject case study throughout the session assessment expectations will be greater than for other commodities. For each of your chosen commodities please provide the following background information:
a. Production Levels (1.5/20 marks)
i. What is your assumed farm production level this year (not the Australian levels)?
ii. What is the average production over the last five years and the projected yield for this current season?
iii. What are the key factors that will impact this projected yield (e.g. rain)?
b. What are the key fundamentals of your commodity at a national and international level? You may include information on consumption production, and carry-over stock levels and any other statistics you feel are relevant. (5/20 marks)
c. Commodity Price (5/20 Marks)
i. Calculate the key components of your commodity prices (e.g. futures, $A, and basis).
ii. Graph how they have tracked over the last three years (on a monthly basis).
iii. Are there any patterns in the data?
iv. Which component do you consider the most volatile?
v. Has there been any movement in the importance of the respective components of price over the last two years?
d. Calculate any other statistics that you feel are indicators of price movement (e.g. mean, standard deviation, distribution graphs etc). Where is the current price compared to these? What does this suggest in risk terms? (3.5/20 marks)
e. What is your market outlook for each chosen commodity? Why? Please feel free to utilize any information you have gathered in previous tasks. What do you consider to be the main factor that could change your market outlook? (5/20 marks)

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