The experts at AgAmerica weigh in on risk management in farming.
Risk is an inherent part of the agriculture industry, but most risks can be planned for to mitigate the damages. A recent AgAmerica Lending article shares advice concerning risk management in farming, offering options to help the nation’s growers and producers prepare. Explore the topic of risk management in agriculture below, and read the advice of our industry experts.
Risks in Agriculture
Problems in agriculture can arise from many angles, but there are a few areas that are the most common. The biggest one is Mother Nature. Long-term climate issues like drought, to short-term weather events like storms and frost, can wreak havoc on a region’s crops and/or livestock. Entire seasons can be ruined and the future of an operation can be put in serious jeopardy within a matter of days. The drought that affected California and the West from roughly 2013 to 2016 and the cold snap in March of 2017 in the Southeast are two such examples.
Furthermore, Mother Nature can also hit farmers and ranchers hard via pests and disease. The Citrus Greening disease, also called HLB, has reduced Florida’s citrus harvests by over 70 percent in the last 12 years. These risks, like other risks in agriculture—fire, high input costs, volatile market prices—can be planned for.
Risk Management in Farming: Making a Farm Plan
Identifying possible risks and making a farm plan to deal with each issue should be an agribusiness’s first step in risk management, according to Mac Miller, Senior Vice President at AgAmerica Lending. He advises his clients to “expect the unexpected and try to plan for it. Model conservatively and make sure to have both a backup plan and a buffer.” The operation should have a plan for as many issues as possible.
For a natural disaster, a farm plan would include creating an agriculture disaster preparedness plan. This maps out what the farm’s priorities are before, during, and after a disaster, accounting for both family and farm employees, and animals and crops, as much as possible. According to the article, the Texas A&M AgriLife Extension Service “recommends that farmers keep an ongoing, updated inventory of property and livestock and have physical supplies ready before disaster strikes. It’s also important to think of places where livestock could be moved in the event of a flood, storm, or other disaster, and how to continue feeding them after relocation.”
Additional options for an agribusiness’s farm plan include:
- Building water storage systems that hold water for irrigation in times of emergency or drought.
- Storing enough hay and forage for feeding livestock during issues like storms, flood, and fire.
- Crop diversification to mitigate damage from pests and disease, weather events, volatile market prices, etc. Efforts like planting cover crops, intercropping, and branching into agritourism all help to put an agribusiness’s eggs in multiple baskets.
Develop a Financial Plan
An agribusiness will also need its farm plan to account for the financial side of the operation. “Be aware of your operating costs, and make sure you have enough money in savings or available on your operating line to get through the next harvest or planting,” advises Doug Moore, Loan Processor at AgAmerica. Savings, crop insurance, and having other financial resources are all important in getting through any disaster or crisis.
Knowledge is power when it comes to financial issues in risk management in farming. “Track the financial markets, know the Farm Bill, and partner with a lender who will be there for you in good times and bad,” shares Miller. AgAmerica Lending understands the ups and downs of agriculture and has created custom loan packages that are as helpful for recovering from a crisis or downturn as they are for growth and expansion.
One example is AgAmerica’s 10-year line of credit, which offers a decade of financial flexibility for growers and producers to utilize in good and bad times.
Ready to discuss your financial risk management planning with one of our experts? Get verified now to start the ball rolling on protecting your agribusiness against the ag industry’s inevitable risks.
SVP of Portfolio Management
Mac’s role at AgAmerica emphasizes his talent for creative capital structuring. Whether setting up financing structures for multi-billion dollar hedge funds, entrepreneurs, or farmers and ranchers, Mac has the ability to think outside of the box and works diligently to set up the optimal capital structure for each client, enabling them to achieve their respective operating goals.
Doug Moore joined AgAmerica in January 2017 as a Loan Processor. Previous to joining our team, Doug worked as a timberland investment analyst. With a master’s degree in Forest Business from UGA’s Warnell School of Forestry, Doug’s wide range of experience has made him adept in forest operations, forest economic analysis, and forest finance disciplines.