Farm & Ranch Days: Risk management strategies necessary to survive and profit in Ag

By Ernie Over, managing editor, county10.com

Part Two in a series on drought management issues

(Riverton, Wyo.) – Agriculture producers could also be known as risk management specialists where rarely is there found a “normal” year. Fortunately, a University of Wyoming Farm and Ranch Management Educator said a growing number of tools are available to assist the Ag industry with recognizing and coping with the risks.

UW Farm and Ranch Management Educator John Hewlett spoke on risk management to a room full of ag producers in Riverton on Thursday. (Ernie Over photo)

UW Farm and Ranch Management Educator John Hewlett spoke on risk management to a room full of ag producers in Riverton on Thursday. (Ernie Over photo)

John Hewlett of Laramie said the drought experienced this past year resulted in livestock numbers being reduced early as producers culled and reduced herd numbers. “It will be very interesting to see how this coming spring unfolds to see what we’ll do with livestock and crop management,” he said during Thursday’s Fremont County Farm and Ranch Days in Riverton.

So, what are the risks?

“There are five main sources of risk in Agriculture, including price fluctuation and marketing changes, crop and livestock yields, governmental regulations and contractual obligations, and management of human resources such as hired hands and other employees. Those four risk areas all contribute to the biggest risk, which he said is financial and making a profit and paying off operating loans.

Because of the unknown at the start of each season, costs of those risks are hard to calculate. In terms of drought risk, producers face lower forage production and lower weight gain per animal, which both relate into a loss of income, Hewlett said.

“Add to those risks weather events and price levels and you get worry, doubt, fear, miscalculation of resources and an unsettled feeling,” Hewlett said. “With a potential for gain or loss also comes moral or ethical implications.

But all is not lost, he said, and he laid out a variety of on line and other tools that can help produce strategies to deal with the risks.

Hewlett used a PowerPoint to discuss risk management strategies with attendees at Fremont County Farm and Ranch Days. (Ernie Over photo)

Hewlett used a PowerPoint to discuss risk management strategies with attendees at Fremont County Farm and Ranch Days. (Ernie Over photo)

At the extreme ends of the strategies are avoiding risk altogether, or accepting it. But he said most producers would choose the middle ground, taking actions to reduce their risks through managing the impacts, transferring the risk to such tools as crop or livestock insurance, or using custom operators to perform some operations. He said producers could also increase their capacity to survive by moving to such solutions as using irrigated rather than dry land forage or grazing, or increasing acreages.

“The goal is to try to limit the negative returns,” he said, through use of the middle strategies an development of budgets and analytical tools. “For example, if a producer was to use irrigated forage rather than dry land, that decision comes at a higher front end cost, but it results in earning the average at the end of the season. The same is true of insurance, the trade off is the up front premium.”

He also said producers could make small changes, such as buying hay instead of grazing, and not using as much fertilizer. Larger changes could include selling calves earlier to gain more forage for the next year or a substantial change could be acquiring more land or an additional farm.

Hewlett had a table full of handouts and compact digital disks on a variety of risk management topics, which are available at any UW Extension office, or on-line.

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