Manage risks before they catch you off guard
Complacency can be dangerous — especially when it comes to risk management on your farm.
“In agriculture, it’s very easy to just say, ‘Oh, farming is risky business.’ But telling yourself farming is a risky business and not getting specific about the risks you face is a disservice to yourself and your farm,” says David Widmar, economist at Agriculture Economic Insights.
Whether it’s a barn fire, crop failure or ruined landlord relationship, risks can be managed.
“Risk management is not something you really like to think about or like to do too much,” says Brent Gloy, economist at Agriculture Economic Insights and Nebraska farmer. “We tend to think only about risks that are happening right now, so a lot of the risk management is done in the rearview mirror as opposed to looking forward.”
Widmar and Gloy provide this template for farm risk management.
1. Brainstorm and write down your biggest risks.
Grab a blank piece of paper and write out some of your ideas What are the risks your farm faces? What is keeping you up at night? Gloy suggests identifying risks in the following categories:
- Production
- Price
- Financial
- Legal
- Relationship and human
2. Dive deep into your top three risks.
From your long list, identify your top three risks for the near-term future. “Narrowing your list down in writing is where you get the return,” Widmar says.
As you review your list, consider how your risk preferences have changed over time. In addition, he says, some time periods for a business are more risky or less risky. For 2022, what holds more risk? Are there any areas of your business that seem to be more stable?
One you summarize your top three risks, share them with stakeholders, such as your family members, farm partners or even landlords. Ask for input, Widmar suggests, but realize risk preferences vary by person.
3. Explore risk management tools and strategies.
You are undoubtably using risk management tools, such as crop insurance, grain marketing plans and farm insurance. When was the last time you reviewed those?
“Don’t just keep hitting the auto renew button, because risks shift over time,” Widmar says.
Also, he says, look at non-traditional tools, which can include working capital, business diversification or your financial structure.
