Managing Marketing Risk

Marketing risk is any marketing related activity or event that is uncertain leading to the variability and unpredictability of prices that farmers both receive for their products, and pay for production inputs. Price variability results from changes in supply and demand, something an individual farmer has little or no control over. 

Issues:

There are many issues surrounding marketing and marketing decisions. First and foremost are unpredictable and unstable prices and the inability to accurately forecast market prices. This uncertainty creates a high level of risk. Improving information and our understanding of the marketing process can be of some help. Also, the lack of market opportunities and limited number of buyers means that individual farmers become price takers and are at the mercy of limited marketing opportunities and buyers. 
Most farmers have inadequate storage and/or transportation options because of their expense. Most commodities are perishable to some degree (some very perishable) and require specialized storage and transportation considerations. 
Changes in the national and world economy drive consumer demand and determine the economic environment farmers must face. This can be positive or negative. Consumer response to prices are not consistent over time. It is important to stay current of consumer tastes and preferences and take advantage of them. For example, food safety and concerns for health means that many consumers will pay a premium for commodities that are free from chemicals and other perceived negative health concerns. 

Summary: 

Not all risk is bad and if risk is eliminated there is no opportunity for profit. Rather than eliminate risk (which is impossible to do when in the business of farming) you need to control or minimize those risks that are undesirable. Through risk management you can usually reduce price variability and improve your profit margin. 

Using marketing alternatives effectively requires understanding and knowledge of markets and how they function. You also need to understand the basic economic principles upon which supply and demand are based and how you can use these concepts to be a better marketer. Knowledge is the key, and the more you learn about marketing, the more opportunities you likely will have. 
Finally, marketing is not a solo activity. It impacts other activities on the farm, and marketing is affected by the production activities and financial situation of the farm. Managing price risk must be integrated with production and financial risk to successfully manage the total risk of the farm.