Wool Price Risk Management course

Australian woolgrowers consistently produce the best quality wool in the world but the prices they receive are often dependent on a volatile market. A new AWI course for woolgrowers examines wool price risk management and looks at forward contracts as an alternative way of selling.

AWI has launched a short online course for woolgrowers that takes a look at the importance of wool price risk management and hedging principles. The content covers types of risk, risk management products, strategies and analysis in relation to the wool industry, and shows how a better understanding of these elements can enable an increased uptake of forward contracts and lead to improved market signals.

Australia has one of the most volatile agricultural sectors in the world, and agriculture is the most volatile sector within the Australian economy in terms of the annual value of its output.

This is even more so for the sheep and wool industries, with sheep farms having the most price volatility compared to other Australian agricultural sectors. For woolgrowers, this usually means that their income margins are at the whim of the rollercoaster of spot prices – and recent studies show a direct link between volatility and farm income.

Volatility affects the whole pipeline resulting in uncertainty that eventually affects decision making from the consumer right back to the farm gate.

New course for woolgrowers

In response, AWI recently launched a Wool Price Risk Management course, available for free on the company’s online Woolmark Learning Centre. It places the wool industry as a leader in price risk management training and education.

The objective of the course is to deliver to woolgrowers a basic understanding of risk management and how it can play a role in enterprises across the supply chain. By the end of this course, learners should be able to understand:

• the importance of price risk management and the benefits of a well-functioning wool futures market
• the different types of risk associated with the wool pipeline
• the variety of risk management products and participants involved in the wool industry
• the concept of hedging principles relative to the wool industry
• how risk management strategies are developed and analysed to benefit the woolgrower.

The course has been designed to take about 2½ hours to complete, but learners can undertake the course at their own pace and go back to previous sections to recap a topic if needed.

The Woolmark Learning Centre is optimised for use on a smartphone and tablet, as well as a desktop or laptop computer, and is available 24 hours a day, seven days a week, wherever and whoever you are.

The course is split into six modules. On completion of all the modules, learners gain their own certification from the internationally recognised Credly digital credential platform, which can be displayed on the user’s own digital professional portfolio such as LinkedIn. A completion certificate can also be downloaded as a hard copy.

The information in the course is general in nature. Contact your broker for further advice.

More information: Access the course on the Woolmark Learning Centre at www.woolmarklearningcentre.com

Modules in the Wool Price Risk Management course

Module 1: A history of innovation and advancement
This first module explores a variety of Australian innovations with a focus on agriculture. It identifies the role the wool industry played in promoting these innovations before introducing the concept of hedging in relation to the Australian wool industry.

Module 2: The importance of price risk management
This module focuses on the significance of risk in relation to the wool industry. It discusses where agriculture in Australia and the wool industry sit regarding exposure to risk and explains how to develop a better understanding of this.

Module 3: The types of risk
This module provides an overview of the different types of risk associated with the wool pipeline (price risk, production risk, counterparty risk, sovereign risk, liquidity risk and funding risk). It outlines the most common risks that exist and focuses on the key risks that influence price and margin outcomes, enabling woolgrowers to make strategic decisions with regards to their enterprise.

Module 4: Risk management products and participants
This module explores the variety of risk management products available to assist the woolgrower in the development of a risk management plan for their enterprise, eg forward contracts vs futures contracts. It explains the various risk management tools that are available and the range of participants that operate in the risk management environment.

Module 5: Hedging principles
This module examines the concept of hedging and explains, using a worked example, how using a risk management strategy can offset adverse price movements in the physical commodity such as wool. It also explains how basis risk can be managed to benefit the woolgrower at settlement.

Module 6: Risk management strategies and analysis
This final module details risk management strategies and analysis required to minimise exposure to market risks associated with the changes in supply and demand. It discusses how to promote an understanding of forward price hedging and margin management using a range of data presentations.