Risk management key to successful farm

No doubt about it—farming is a risky business.
But while farmers can’t prevent such things as price drops, bad weather, and poor market conditions, they can protect themselves against some of the devastating consequences these risks can have on their operations.
Risk management is a way to deal with risks through financial management. It involves designing strategies to cope with unexpected trouble situations.
Risk falls under several categories for which different planning methods can be used. They include the following:
•Marketing and price risks
Market prices can fluctuate a great deal—even over a short period of time. In addition to expected seasonal cycles, there also are unexpected variations in such things as supply and demand.
These types of marketing and price risks can be estimated beforehand to buffer their effects on the farm operation.
Strategies include inventory management, and forward contracting and hedging. As well, farmers should maintain flexible marketing plans to allow for unexpected changes.
•Financial risks
These risks are associated with the farm’s financial arrangements. Increased interest rates on loans and variable cash flows could cause severe problems unless risk strategies are in place.
Farmers should look at some preventive strategies, such as up-to-date record-keeping, regular preparation of financial statements and cash flow budgets, pacing of investments for debt repayment, loan payments planned to correspond with income from sales, and maintenance of cash and credit reserves.
•Production and yield risk
These risks are related to unexpected weather conditions, types of enterprises, disease, increased input costs, and so forth.
Risk protection could include diversification of crop and livestock enterprises, cost control measures, and insurance.
•Risk of obsolescence
Technology is advancing ever more rapidly and affects farm machinery and equipment, as well as farming practices.
To reduce the risk of out-dated equipment, a farmer could consider leasing or renting rather than purchasing machinery, contracting out work that requires specific equipment, or even splitting costs and sharing machinery with another farmer.
Attending farm seminars and courses, and reading agricultural magazines and newsletters, are other ways to avoid having outdated farm practices.
While these risk management strategies may sound complex, a farmer won’t necessarily need to guard against each risk.
< *c>Dates to remember
•Sept. 29—Regional marketing workshop, 9 a.m.-noon, La Place Rendez-Vous (Fort Frances)


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