Why finding the farm management partner is key to handling risk
November 29, 2019

Why finding the farm management partner is key to handling risk

Farming is a risky business. There's no way around it.

However, farmers and farmland owners don't have to manage the risk alone. There are many resources available that can provide strategies for handling risk. There are also people and professionals who are ready to help navigate risks in agriculture.

This includes farm management, something that is critical for farmers and farmland owners, including investors, and others who must oversee large amounts of agricultural land with hopes of seeing positive returns on their investments.

But an experience farm manager partner can also help manage risks in many areas affecting farmers. The common farming risks include production, marketing, financial, legal, personnel and institutional risks.

Again, a good farm management partner can help guide farmers, farmer tenants and landowners through these areas to make sure all goals for the farm are accomplished. Now, let's take a look at those common risk areas to get a better sense of what those risks entail.

Production risks

One of the primary risks in agriculture focuses on production. Farmers must deal with the fact that production presents risks.

For example, farmland may not meet expected levels of yield or output. This could be caused by a variety of factors, such as weather, insect damage, disease and equipment related issues. Any of these issues can affect both the quantity and quality of production.

To help address production risks, farmers can take several steps. That includes following recommended practices, diversifying the crop varieties grown, crop insurance and having better maintenance plans that are more closely followed.

There are, of course, many other ways that production risk in agriculture can be addressed. This certainly should be a topic of conversation with a farm management partner.

Marketing risks

In farming, there is a marketing risk that a producer could lose the market for their products or that they will get a lower price than expected. And, as anyone in agriculture knows, prices can vary widely from commodity to commodity, making some risker than others to produce and sell.

This could be due to a number of various reasons. There could be more growers competing against each other, consumers may have changed their preferences or a product could be performing at lower levels than expected.

Luckily, these are all addressable when speaking with a farm manager about what marketing risks a farm could face.

Financial risks

Many farmers know that they face financial risks. Maybe there is not enough cash on hand or profits are low.

This type of risk is commonly brought about by production or marketing issues. Sometimes, financial risk is the result of the business needing to borrow money and thus incurring debt that must be repaid. That means an eye must be kept on interest rates, lenders who may call loans and restricted availability.

No matter the source of financial risk, there's no doubt it is a stressful one.

What's the solution? Work with a farm management firm to develop a strategic business plan. This will lay out a strategy for monitoring expenses, income and give a better look at how a farm is performing financially.

The farm manager also will likely keep an eye on other factors that could affect farm financial performance.

Legal risks

There are many legal risks in agriculture. These risks could be related to contracts, business agreements, tort liability and environmental concerns.

There is a lot to know in order to get a handle on all these legal risk areas. It's a lot to keep track of. But that's where working with a farm management company pays off. They can help you review insurance policies, business contracts, environmental practices and more.

Human resource management risks

This risk category comes down to personnel issues. It could be a farmer's family, but also their employees. Poor employee management is one of the major risk areas here. However, the problems here can arise from much broader people management and communication issues.

That's why it's important for anyone who manages people on a farm to develop good people skills. They also need to have a plan for sourcing labor and managing their employees well.

Once again, a farm manager can be of invaluable assistance here, especially in areas that require excellent communication between different parties.

Institutional risk

As a regulated industry, agriculture does come with some institutional risk. In many cases, this institution is the government, whether that be local, state or federal. There is simply a given amount of uncertainty when government policies can shift.

These government policies include price support and subsidies, food quality regulations for export crops, animal waste disposal and much more.

This is another risk area where it helps to have experience and experts from a farm management firm on your side.

What a farm management company can do for your assets

Through better risk management, a farm manager can help build and sustain success. One of the best ways to ensure an investor is able to capitalize on asset appreciation is by partnering with an experienced, trusted farm management firm.

In today's agriculture economy, farming requires conversations about profitability, fertility, conservation, tax issues, grain marketing, tenant selection - the list could go on and on. Farm managers can help farmers and farm owners.

So, why is having a good farm manager so vital to success? Because each piece of farmland has its own characteristics, benefits and challenges. It takes a professional who knows how to look at that information and compile a farm management plan that is customized for that particular piece of land. Combined with oversight, this plan - and following it - is what optimizes the return on investment for the farm.

Let's talk about the farm

What's your plan for dealing with risk for your farming operation? If it's time to refine or develop a plan that leads toward your success, then consider working with us at Cotton Grave Farm Management.

Contact Cotton Grave today to discuss how we can partner with you to deliver a better return on you and your family's investment.

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