The Microsoft corporation's founder, Bill Gates, challenges the computer users of the world by asking them the question, "Where do you want to be tomorrow".

This is also a fair question in terms of managing price risk to pose to all woolgrowers of Australia who enjoyed a long period of relative market stability and security under the Reserve Price scheme, followed by extreme volatility and uncertainty since its demise.

There are numerous products available to wool producers to manage the price risk that they face, however the up-take by growers has been slow.

Why is it so difficult?

To many woolgrowers the question of "Where do you want to be tomorrow" in terms of price risk management is too challenging, because it requires them to think outside of the normal perametres they have operated in as far as selling wool is concerned in the past.

Most woolgrowers will also use excuses to not respond to the challenge of price volatility, with common responses being:

• futures are too difficult to understand,
• futures contracts don't suit my clip,
• forward prices are always too low
• I just don't know how to go about it.

All these reasons are basically just excuses for wool producers not taking control over the pricing of their commodity and the future viability of their business.

Woolgrowers are already operating to "Best practice" standards.

In many other areas woolproducers are challenged to be above average. Pasture production, sheep genetics, animal husbandry and business planning are all areas where the professional farmer now pursues a levels well above what was considered best practice 15 years ago.

Managing price risk by wool producers should be considered in the similar light;

•  it has the ability to increase their profitability,
• it builds on existing practices that they comfortably work with, and
• it is within their grasp of understanding.

Manage the disasters and take advantage of the good times.

Creating a risk management plan for woolgrowers that is well researched, prepared and documented will allow a woolgrower to create planned outcomes. The initial objective will be to manage against collapsing wool prices, ensuring that even in times of poor wool prices the producer has a workable plan in place. This will provide the best chance for him to at least break even on his wool growing enterprise, without adding to the overall debt of the farm business. This result at times will not create a great deal of personal satisfaction, however the added value of a well structured plan will be to allow for very attractive prices to be taken advantage of in buoyant times.

Many times woolgrowers have read in the paper (or heard in the pub) of the market being at very high levels when they don't have any physical wool to sell at auction. The forward and futures markets now allow woolgrowers to sell at any time prior to their shearing, comfortably up to three years in advance.

Understanding how the futures market works.

Many woolgrowers use the excuse that the complex rules and regulations of the futures market are a reason for not selling forward. In the current greasy wool auction system there are many rules and regulations that contribute to the effective running of the wool auction. These are generally managed by AWEX, AWTA or the wool brokers acting on behalf of and in the interests of the wool seller and the wool buyer. If woolgrowers were to try and understand all these rules and regulations they would see that using the auction system can also be a complex issue.

Wool producers selling forward either by using forward contracts, or futures and option contracts should be aware that rules and regulations also apply to these products. It is not essential, however, if a wool producer wishes to reduce his/her risk to adverse wool prices that all these rules and regulations are completely understood by a woolgrower using them. Engaging qualified consultants or advisers who can lead the woolgrower through the process of using the forward market will provide the same service as a wool broker when selling wool at auction.

Setting price targets, identifying whether to use a futures contracts, an options contract or a forward contract, when to use them and developing a forward selling strategy are all essential elements of a risk management program that will be made easier by engaging a qualified and committed consultant. This person could come from the many advisers in the industry who understand woolgrower's needs and specialise in forward planning, or it may be from your traditional wool broker who is looking to contribute more to you business than just being an auctioneer of your wool clip.

The market might rise if I lock in a forward price today!

Woolgrowers seem to have a greater fear of the market rising after they sell forward, than of the market falling when they allow the auction price to determine their year's income. This is at complete odds with most other manufacturers or producers of commodities, as locking in a profit over and above their break-even costs is their primary goal.

A sound strategy for wool growers concerned that the market may rise after they complete a forward sale would be to sell a percentage of their clip on at the current market level, and then leave an offer to sell more wool at a slightly higher rate. Placing Good Til Cancelled orders in the on the futures market will allow producers to take advantage of higher prices when they arise, without having to monitor the market.

Selling a little, and selling often is a sound motto to maintain when looking to lock in forward prices.  It should not be forgotten that wool growers looking to secure a long term future in the wool industry have more than one clip they will need to sell. The best result if you lock in a satisfactory forward price is for the market to rise. This will allow the wool producer with a well-researched risk management plan to continue to forward sell future production at very satisfactory levels.