COMMODITY RISK MANAGEMENT
AGR3CRM
2018
Credit points: 15
Subject outline
This subject introduces students to factors impacting on agricultural production which are beyond the farm gate. It focuses on understanding commodity markets and the price discovery mechanism, local pricing, supply chains, price-currency risks, 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, while 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 default risk, futures and options hedging, basis risk, over-the-counter bank pricing products, and managing commodity risks within the organisation.
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 Type | Title | Resource Requirement | Author and Year | Publisher |
|---|---|---|---|---|
| Readings | Agricultural Supply Chains and the Challenge of Price Risk | Prescribed | Williams, J., 2014 | Routledge |
| Readings | Agricultural Price Risk Management: The Principles of Commodity Trading | Recommended | Williams, J. and Schroder, B., 1999 | Oxford University Press |
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.
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.
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.
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.
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.
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.
Subject options
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Melbourne, 2018, Week 09-15, Day
Overview
Online enrolmentYes
Maximum enrolment sizeN/A
Enrolment information
Subject Instance Co-ordinatorJohn Williams
Class requirements
Block Mode
Week:
09
-
09
Five 9.0 hours block mode per week
on weekdays
during the day
from week 09 to week 09
and delivered via face-to-face.
"Five 9-hour days in Week 9"
Lecture
Week:
12
-
12
One 3.0 hours lecture per week
on weekdays
during the day
from week 12 to week 12
and delivered via face-to-face.
WorkShop
Week:
12
-
12
One 4.0 hours workshop per week
on weekdays
during the day
from week 12 to week 12
and delivered via face-to-face.
Assessments
| Assessment element | Comments | % | ILO* |
|---|---|---|---|
| One written 2-hour examination | 60 | 01, 02, 03, 04, 05, 06 | |
| One written in-class test (approx. 500-words equivalent) | 10 | 01 | |
| One written report (hedging exercise) - (approx. 1,500-words) | 20 | 02, 03, 04, 05, 06 | |
| One written report (trading account exercise) - (approx. 500-words) | 10 | 02 |