January 8, 2010

Tips for Managing Risk in Today's Agricultural Economy

At the December Farmers and Ranchers College workshop, agricultural economist David Kohl shared important risk management recommendations with a group of more than 100 producers and agribusiness professionals.

Kohl, who recently retired from Virginia Tech University, continues to conduct research and speak with agricultural groups across the country. He also contributes to Corn and Soybean Digest. Following is a brief synopsis of five key points he said are critical to the success of agricultural operations today.

• Stash that cash. Having money available allows you to better weather market swings and
• Maintain liquidity, liquidity, liquidity. It’s important to have some assets that can easily be converted into cash.
• Be innovative. Manage all aspects of risk. Risk management is more than grain marketing. It is essential to take a three-pronged approach that includes:  1) costs and inputs; 2) crop insurance and marketing; and 3) interest rates. It's an old, but true adage, particularly when you're managing risk:  Don’t put all your eggs into one basket.
• Be resourceful. Have another person look at your business plan and/or operation and have them challenge you. Discuss various options. Seek people who will provide good feedback and have a positive impact on your success.
• Be selective. Only select or buy tools that are within your management abilities or fit into your system. Also, don’t buy the “love property” – that property which you just have to have, even if it doesn’t make sense to buy it. When you buy land, be sure to have liquidity. Don’t borrow money just because “the money is cheap.”

Successful Producers

Kohl also listed several attributes of prosperous producers:

• Proactive in changing environments
• Can see different perspectives and think outside the box
• Has networks and alliances with a strategic focus
• Possesses excellent people and human resource skills
• Negotiates win-win situations
• Can coordinate one’s production system
• Is a solid risk manager and calculated risk taker
• Has financial management systems
• Has excellent time management skills and balances work, family, and play
• Is selective about technology adoption

For more recommendations from Kohl, see his articles in the Corn and Soybean Digest.
Watch CropWatch or check the Fillmore County Extension Web site for more information on future programs from the Farmers and Ranchers College.

Brandy VanDeWalle
UNL Extension Educator in Fillmore County