It’s not an easy question to answer, and many times businesses don’t know the exact answer until after reaching that limit. The math and mental gymnastics to truly understand how much risk your farm can handle can be exhausting, but it can be calculated with enough what-if scenarios.
“What happens if ...?” Constantly ask this question when evaluating marketing opportunities. Hopefully the answer is a piece of ground can be paid off and you can make plans for the next stage in your operation. Most often the answer will be a list of items that will move your business forward in a positive way, but sometimes there are negative consequences with answers that start with: I won’t be able to.
In multigenerational businesses, the risk tolerance levels of different generations are often miles apart. On a farm, the established generation might have such limited risk that an entire year’s crop could sit in the bin for 12-plus months without changing the day-to-day or even lifetime goals and performance of that business. In the same business, the positioning generation could be living paycheck to paycheck with several big Xs on the calendar that mark when payments are due. Those different risk levels require different marketing strategies, and to blend that variable risk into one strategy takes understanding and respect. For example:
- Positioning generations need to respect what the established generation has accomplished and understand how a strong financial position gives them the ability to accept risk (and the potential rewards).
- Some established generations need to remember what it’s like to be scared and how that makes the positioning generation averse to risk (even if it means giving up potential rewards).
Some address these differences with more bins — different bins for different generations. Some blend bushels but individually market their share. Others blend bushels, share marketing and share revenue. All strategies have potential negative outcomes, but none can be successful without understanding risk tolerance of all involved.
Grain price outlooks are driven by the supply side of the balance sheet. Markets will be exceptionally sensitive early this summer to actual planted acres, weather trends and changes in yield potential. Demand issues matter, but analyst after analyst on “AgriTalk” have told me the quick fix to chase sellers out of the grain markets is a U.S. crop problem. A national average corn yield in the low 170s and a soybean yield under 50 bu. per acre would offer opportunities to sell 2024-crop corn above $5 and soybeans near $13.
Some can handle the risk of waiting to know more about the supply side of these markets. Others have payments due now. If your risk tolerance is low, use any price strength to increase forward sales to reduce risk. Even if your risk tolerance is high, the fundamentals of the 2024/25 marketing year should encourage you to be a willing seller.
