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Riding the risk

11/17/2011 @ 11:00am

With the price of everything continuing to go higher – crop inputs, futures markets and margins, land prices – a quote that I recently heard from a Chicago commodities broker comes to mind: “Agriculture is on an island of prosperity, in a sea of despair.”

It's hard enough to ride the sea of risks that are a natural part of producing a crop, but in this day and age, U.S. farmers have more risk factors to keep in order than tubes of grease in their machine sheds. With price volatility, historic global economic crisis events, currency fluctuations, outside money flows into commodities, and increased world grain demand, deciding the when, how, what, and why of grain marketing can be as difficult as killing a patch of overgrown milkweeds with a lawn trimmer or fighting off a swarm of mosquitoes with a postage stamp.

It's important to plan ahead.

But what if you had preplanned for that mosquito attack? What if you had thought ahead, that based upon the factors surrounding you, the likelihood was good that mosquitoes could show up? Perhaps you could have had a bigger fly swatter or more bug spray or some other protection for that blood-sucking risk.

The bottom line is riding the grain marketing risk is a farmer's challenge.

In a recent interview with Successful Farming magazine and Agriculture.com, Iowa Secretary of Agriculture Bill Northey, also a farmer, admits the challenge gets more and more difficult. “Crop inputs don't fall with crop prices. Managing the risk is a real challenge to navigate,” Northey says.

With so much uncertainty anymore, the answer may lie in planning ahead for any eventuality. Or put another way: scenario planning.

“With so much uncertainty anymore, the answer may lie in planning ahead for any eventuality. Or put another way: scenario planning.”

In this special marketing issue, you will find insight and tips on developing a planning scenario for your risk management. The idea of scenario planning, used by the U.S. government in world wars, is not new. But the concept has been effectively applied in managing commodity risk.

Angie Molkentin, a contributing editor, lays out in her story, “Scenario Planning,” the definition, practical steps, and benefits of using this method to reach your grain-marketing goals.

Meanwhile, have you heard of Farm Freedom Day? In these pages, you'll learn what one economist says about the opportunities for farmers regarding historically low interest rates.

Contributing editor Andre Stephenson spells out in his story, “Farmers Eye Interest Rates,” why farmers should not be taking cheap money for granted in 2012.

Business editor Dan Looker, in his in-depth report, “Margin Management,” explains that the debate over whether to lock in margins to cover input costs by selling part of your crop for the same year is still alive. Managing margins is not simple or easy or fail safe, say market analysts. Looker explains that farmers who manage margins are focusing mainly on offsetting fertilizer fuel and land rents with crop sales. The debate on margin management seems to center around what percentage of a crop should be sold ahead. Some farmers see preselling 20% to 30% as acceptable – but not 50% to 60%.

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