COMMODITY RISK MANAGEMENT

AGR3CRM

2016

Credit points: 15

Subject outline

The subject introduces concepts of agribusiness, idealistic product differentiation marketing and the global agribusiness environment. Risk is examined and the need for forward markets to offset this risk is explained. Problems with supply chain integration will be detailed, which requires parallel markets to offset price risk but with associated trade-offs and risks. Strategies to manage both price and currency risk will be evaluated. Topics include the market price mechanism, commercial trade markets, characteristics of forward markets, identifying market position and calculating exposure through position valuation, risk transfer mechanisms, establishing risk management objectives, problems with forward contracts under high risk, futures hedging, basis risk, hedging using options, over-the-counter bank pricing products, currency risk management, developing tactics in decision-making, financing commodity inventory and managing commodity and financial risks within the organization.

SchoolSchool of Life Sciences

Credit points15

Subject Co-ordinatorJohn Williams

Available to Study Abroad StudentsYes

Subject year levelYear Level 3 - UG

Exchange StudentsYes

Subject particulars

Subject rules

PrerequisitesN/A

Co-requisitesN/A

Incompatible subjects FIN3DER

Equivalent subjectsN/A

Special conditionsN/A

Readings

Resource TypeTitleResource RequirementAuthor and YearPublisher
ReadingsPrescribed pre-reading: Chapters 1, 2, 3, 5, 7 & 10 of: Competition and Efficiency in International Food Supply Chains - Improving Food SecurityPrescribedWilliams, John, 2012EARTHSCAN-ROUTLEDGE, UK.
ReadingsPrescribed text: Agricultural Price Risk Management - The Principles of Commodity TradingPrescribedWilliams, John and Bill Schroder, 1999OXFORD UNIVERSITY PRESS, MELBOURNE.

Graduate capabilities & intended learning outcomes

01. Identify the major risk variables in agricultural food-fibre supply chains.

Activities:
In lectures and tutorials students will discuss and research the risk variables in food-fibre supply chains. Students will practice techniques in analytical commodity risk management through exercises. As preparation for this subject, information about basic terminology and concepts will be made available to the students prior to the commencement of the lectures (prescribed pre-reading). This includes notes and exercises.
Related graduate capabilities and elements:
Discipline-specific GCs (Discipline-specific GCs)
Inquiry/ Research (Inquiry/ Research)
Critical Thinking (Critical Thinking)

02. Analyse forward commodity market characteristics in commercial trade markets.

Activities:
In lectures and tutorials students will research forward commodity market characteristics in commercial trade markets. Through discussions, exercises and assignments students will practice interpreting commodity markets. The assignments will focus on Internet real-time market prices and information. As preparation for this subject, information about basic terminology and concepts will be made available to the students prior to the commencement of the lectures (prescribed pre-reading). This includes notes and exercises.
Related graduate capabilities and elements:
Critical Thinking (Critical Thinking)
Writing (Writing)
Discipline-specific GCs (Discipline-specific GCs)
Inquiry/ Research (Inquiry/ Research)

03. Apply the principles of market risk management to supply chain situations.

Activities:
In lectures and tutorials students will discuss how to apply the principles of commodities to market situations. Students will research futures, options and over-the-counter products, access commodity data and information sources and interpret commodity charts. As preparation for this subject, information about basic terminology and concepts will be made available to the students prior to the commencement of the lectures (prescribed pre-reading). This includes notes and exercises.
Related graduate capabilities and elements:
Inquiry/ Research (Inquiry/ Research)
Critical Thinking (Critical Thinking)
Discipline-specific GCs (Discipline-specific GCs)
Writing (Writing)
Quantitative Literacy/ Numeracy (Quantitative Literacy/ Numeracy)

04. Evaluate hedging tactics and calculate hedging risks and the impact of basis movement in order to minimise the impact of risk variables on business profitability.

Activities:
In lectures and tutorials students will discuss and examine hedging risks and tactics. Students will practice techniques in analytical commodity risk management through exercises and assignments. Students will research futures, options and over-the-counter products and access commodity data and information sources to increase individual confidence in hedging. The assignments will focus on Internet real-time market prices and information. As preparation for this subject, information about basic terminology and concepts will be made available to the students prior to the commencement of the lectures (prescribed pre-reading). This includes notes and exercises.
Related graduate capabilities and elements:
Writing (Writing)
Inquiry/ Research (Inquiry/ Research)
Creative Problem-solving (Creative Problem-solving)
Quantitative Literacy/ Numeracy (Quantitative Literacy/ Numeracy)
Critical Thinking (Critical Thinking)
Discipline-specific GCs (Discipline-specific GCs)

05. Design flexible strategies to achieve the risk target objectives.

Activities:
Students will discuss strategies to achieve risk target objectives in lectures and practice these during exercises and tutorials. As preparation for this subject, information about basic terminology and concepts will be made available to the students prior to the commencement of the lectures (prescribed pre-reading). This includes notes and exercises.
Related graduate capabilities and elements:
Creative Problem-solving (Creative Problem-solving)
Critical Thinking (Critical Thinking)
Discipline-specific GCs (Discipline-specific GCs)
Writing (Writing)
Inquiry/ Research (Inquiry/ Research)

06. Implement over-the-counter bank products.

Activities:
Students will research futures, options and over-the-counter products in lectures and tutorials. As preparation for this subject, information about basic terminology and concepts will be made available to the students prior to the commencement of the lectures (prescribed pre-reading). This includes notes and exercises.
Related graduate capabilities and elements:
Writing (Writing)
Inquiry/ Research (Inquiry/ Research)
Discipline-specific GCs (Discipline-specific GCs)
Critical Thinking (Critical Thinking)

Subject options

Select to view your study options…

Start date between: and    Key dates

Melbourne, 2016, Week 09-15, Day

Overview

Online enrolmentYes

Maximum enrolment sizeN/A

Enrolment information

Subject Instance Co-ordinatorJohn Williams

Class requirements

Lecture
One 5.0 days lecture per study period and delivered via face-to-face.
"26 Hours of blockmode lectures"

Tutorial
Nine 1.0 hours tutorial per study period and delivered via face-to-face.
"9 hours of blockmode tutorials"

Tutorial
One 3.0 hours tutorial per study period and delivered via face-to-face.
"Revision tutorial during the semester"

Assessments

Assessment elementComments% ILO*
One written 2-hour examination60 01, 02, 03, 04, 05, 06
One written in-class test - approx. 500 words10 01
One written report (hedging exercise) - approx. 1500 words20 02, 03, 04, 05, 06
One written report (trading account exercise) - approx. 500 words10 02