As I sit down to write this month’s article, my TV is tuned to the local news station while I await the winning Powerball Lottery numbers for the historic $1.5 billion jackpot. Like most people who purchased a ticket, I spent a few minutes (ok, maybe more than a few…) daydreaming about how I would spend the winnings if my numbers were chosen. Thankfully the subzero temperatures outside the store snapped me out of my fantasy of being on a yacht in the Caribbean. I eventually decided that I would keep farming until it was gone! While farming can sometimes feel like we are just playing the lottery and gambling on making a profit, there are a few main principles of risk management we can all follow to up our odds.
First, we need to know our costs. As this point in the 2016 crop year, we should already know what our seed, fertilizer, equipment payments, rent, and chemical prices are. There will still be some unknown variables, but we can come up with a close estimate of what each acre will cost to get the crop in the ground and off to a good start. This number may seem uncomfortably high, and we might look for shortcuts, but we need to be mindful of where the costs are cut. It is important not to cut costs in a way that negatively affects our profit potential. Decision management is 2016’s key element to controlling costs.
That being said, we also need to have a profit goal in mind. Are you shooting for just breaking even, or is it your goal to raise the largest crop ever on your farm? Knowing where we want the bottom line at the end of the year will help decide what risks to take, costs to cut, or where to splurge. It is also important to lock in profits whenever possible. While farmers realistically won’t expect to see $8 corn like a few years ago, always pay attention to the markets and try to contract a profit when an opportunity presents itself – even if it is not extraordinary.
One of the most lucrative decision management tools a farmer can use to aid in risk management is his Multi-Peril Crop Insurance policy. Crop insurance is used as a means of helping farmers cover costs of production. There are several different coverage types and options to choose from to customize your own policy to fit your farm’s needs. Revenue Protection and Yield Protection will give guaranteed revenue or bushel amounts. These policies help protect against uncontrollable variables such as adverse weather, dramatic swings in the markets, and other naturally occurring losses. Policy options are available as add-ons to increase coverage in the event of prevented planting, widespread loss years, or outdated yield information. Farmers are encouraged to work with their crop insurance agents to build a policy that suits their risk management needs without being too costly.
Well, the winning numbers were just announced and I didn’t have a single digit that matched. I guess it is back to the grindstone tomorrow. It is nice to know that even though I am not a billionaire, I still have the risk management plan and decision management tools to keep farming for years to come – without having to make a dicey wager. I’m not sure if I would know how to sail that yacht on Lake Byron anyway.