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Effective risk management crucial for New Century Farmers

Agriculture.com Staff 07/12/2007 @ 12:40pm

Managing volatile markets was foremost on the minds of 40 college-age FFA members attending the annual week-long New Century Farmers Conference (NCF) at the Pioneer Hi-Bred campus in Johnston, Iowa.

"Risk management starts with knowing your costs," said Scott McLaughlin who farms with his wife Shawn near Defiance, Iowa. The McLaughlins were part of a NCF alumni panel. "We have help from a consultant to watch the markets, and to tie in our sales with profit margins we can live with. We’re not looking for a home run. We want a base hit."

McLaughlin, 36, said they rely on crop and disability insurance as key components of their risk management strategy. He and Shawn have four children, ages 2 to 9.

Participants listened intently as presenter Sam Wise, Pioneer Hi-Bred Field Support & Training Manager, led them through strategies for managing their price risk. Wise advised them that a solid marketing plan is the best defense against the emotional roller coaster of commodity markets.

He suggested six steps:

  1. Develop a price objective
  2. Determine cash flow needs
  3. Consider individual price risk
  4. Consider individual production risk
  5. Consider price history
  6. Choose marketing tool (cash flow needs will help determine)

Wise reinforced the point that crop insurance also serves as a risk management tool. "Crop insurance can give you the confidence to make aggressive pre-harvest sales, and sell in weather markets," he said.

Questions from participants kept returning to ethanol as the wild card in today's corn market.

"There are four or five ethanol plants coming on-line in my area," said panelist Javan Kruse, Everly, Iowa. "But I'm not plugging $4 into my cash flow for next year."

He emphasized setting goals. "When you're still in school, goal-setting may sound ridiculous, but it's not. Make sure you can measure your goals in numbers or years."

Earlier in the week, the New Century Farmer participants identified the top seven challenges in agriculture today:

  • Gaining a toehold for the future in agriculture
  • Obtaining adequate financing, and building capital to farm
  • Pressures from special interest groups
  • Maintaining a good public image for agriculture
  • Managing high input costs
  • Making good marketing decisions
  • Coping with water rights and other water scarcity issues

The New Century Farmer Conference is sponsored by Pioneer Hi-Bred International, Inc., Successful Farming magazine and Rabobank as a special project of The National FFA Foundation.

Managing volatile markets was foremost on the minds of 40 college-age FFA members attending the annual week-long New Century Farmers Conference (NCF) at the Pioneer Hi-Bred campus in Johnston, Iowa.

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