Tackle the Biggest Risks to Your Farm
In 2022, Brent Gloy told farmers they were going to plant the most expensive crop they’ve ever grown. This year, he predicts farmers to do the same, maybe even investing bigger bucks in their crops.
“We are facing a year with a really high-cost structure and a tremendous amount of uncertainty,” says Gloy, economist at Agriculture Economic Insights and Nebraska farmer.
Drought, inflation, equipment breakdowns, China, cash rent levels — the sources of stress and uncertainty for the season ahead are plentiful. When uncertainty is plentiful, so is decision paralysis.
To play offense and face the biggest risks to your farm, Gloy and David Widmar, fellow economist at Agriculture Economic Insights, suggest a simple decision framework.
- Prioritize three key risks. From the laundry list of challenges your farm is facing, narrow it down to just a few. Think broadly but then really focus on your farm. Do you have a big farmland lease up for negotiation that would dramatically reduce your acres if you can’t come to terms? Could one of your key employees decide to retire next year? Brainstorm then pick the top three.
- Summarize the specific risks. “Spend 10 minutes writing a summary of why each risk is at the top of your list,” Widmar says. Answer questions such as: Why did I prioritize it? What is the probability it could hap-pen? When could it happen? The simple act of writing down the specifics of the risk will help you clarify your thoughts and fears. It will also let you share your plan with family members, employees and trusted advisors, Widmar says. This gets everyone on the same page and working toward the same goals.
- Identify risk management strategies. This is simply coming up with solutions or alternatives to each risk. For instance, if you are worried about interest rate jumps on your loan portfolio, you can work with your ag lender to analyze your typical borrowing habits and the variable or fixed rate options. This homework and strategizing help you avoid knee-jerk decisions.
“We want to maybe avoid those abrupt turns in our business plan,” Widmar says. “You want to define how you can make slow adjustments and calm easy turns with plenty of time to execute.”
Gloy and Widmar presented a webinar on this topic for Farm Credit Services of America. Watch it: Three Tips for Navigating Uncertainty in 2023
Learn how five farmers navigate decision making, diversification and strategic growth on the Farm CPA Podcast with Paul Neiffer.
