What you should know about risk management and farming
The farm business is a risky business. There is no way to escape this fact.
However, there are ways to better manage those risks that can lead to more positive financial outcomes and set up farms for sustained success in the future.
In this post, we will explore some of the risk management strategies farmers can use to help their operations by taking a closer look at what risks must be addressed and what tools are available.
Good risk management protects you and your farm
As far as farm risk management goes, the primary goal at the end of the day is to find the best tools to secure financial success - and protect a farmer’s assets from claims and lawsuits.
Both of the latter could be the result of people suffering injuries or property being damaged from accidents associated with the farm business.
To protect yourself, you will need to find an insurance agent that you trust and who knows the ins-and-outs of different types of insurance services producers may need to consider.
Insurance that protects farm property and assets
There are many different types of insurance that offer protection for farmers’ and ranchers’ property and assets. This can include very standard types of insurance, such as vehicle and homeowners insurance, that many people - not just farmers - should have.
In addition, though, many insurance services are more specific to producers’ needs. This includes farm insurance that covers barns, equipment, animals, rental housing and other farm assets; workers compensation insurance that is required if a farmer has employees; product liability insurance, which can cover damages that could come up due to consumption, handling, use or the condition of a farm’s products - the list of insurance coverage types goes on and on.
And then, of course, there is crop insurance. This vital insurance protects annual production losses that can be caused by weather, pests or other loss causes.
Producers can purchase federally subsidized coverage from certified insurance agents. There are also disaster programs provided by county-level USDA Farm Service Agencies that can provide up to 65% coverage for crops in areas where crop insurance is not available.
The USDA Risk Management Agency and crop insurance
The United States Department of Agriculture Risk Management Agency, also known as the RMA, was created in 1996. The RMA provides agricultural producers with market-based risk management tools that seek “to strengthen the economic stability of agricultural producers and rural communities,” according to the RMA’s website.
It’s the RMA’s goal to increase both the availability and effectiveness of Federal crop insurance in how it is used to manage risk. The RMA is responsible for managing the Federal Crop Insurance Corporation, FCIC, in order to make available crop insurance products to farmers and ranchers across the country.
The RMA has a public-private partnership with Approved Insurance Providers (AIP) that sell and service federal crop insurance policies. These AIPs are backed by the RMA because of their shared risks associated with major weather events that cause large losses.
Bring your crop insurance agent to the discussion
Crop insurance can help farmers and ranchers in many different situations, as the National Crop Insurance Services points out.
If you are not already, then you should always be speaking with your crop insurance agent about how insurance policies can help protect farmers’ crops if disaster strikes, market more profitably, gain better credit access, secure a minimum income level, reassure your family and any financial partners and, very importantly, provide farmers with a much-needed peace of mind as to what the future may hold.
The NCIS notes that more than 120 crops are insurable - and operations with multiple crops can be insured, too. But these policies are always changing. That’s why farmers must bring their crop insurance agents to the table. Producers need all the information they can get. Crop insurance agents will help farmers get that information and determine what tools could work best for them.
Insurance tools to cover personal risks
Farmers and ranchers must also consider other traditional types of insurance services and products. Insurance for personal vehicles on the farm, not just work-related equipment, is a must, as is health and life insurance. Another insurance service that producers may want to consider is business interruption insurance, which can help cover living expenses if the farmer is hurt and can’t work.
Understand how to market better
A better marketing plan can help reduce a farm’s financial risk. WallacesFarmer lists several suggestions for how farmers can employ better marketing strategies.
First of all, as noted in WallacesFarmer, producers should always seek out ways to fine-tune their farm’s grain marketing plan based on the cost of production. Be on the lookout for areas of opportunity in the profit margins of crop and livestock production. Lock in prices when opportunities exist.
Farmers should also rely on business management advisors, marketing advisors, crop consultants and any other advisors who can help with marketing and other farm management decisions that may concern marketing. There should be conversations with these advisors about current marketing plans and how those plans affect an operation’s cash flow.
USDA can provide marketing assistance to manage market risks
USDA farm service agencies (FSAs) can assist producers manage the market risks they may face.
One area FSAs can help with is price loss. There are two programs offered that can help farmers, the Agriculture Risk Coverage (ARC) and Price Loss Coverage programs. Both were continued from the 2014 Farm Bill to the 2018 version.
Producers should also reach out to USDA FSAs when geographic factors have created a disadvantageous situation.
Partner with Cotton Grave Management to assess risk management
Is your farm doing all it can to employ better risk management strategies? Contact Cotton Grave Farm Management today to take a look at areas of strength and where opportunities may exist to better protect your farm and livelihood.
Cotton Grave Farm Management can offer insights and services in many management areas, including grain marketing, financial management and a broad range of services that make ensuring farms are as profitable as possible for landowners and tenants.
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