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323140

The more farmers make the more risk they take on, analyst says

As input costs increase, the feeling of slipping profits is real.

Supply shortages, trucking issues, pent-up demand, inflation … you name it, and it can be attributed to higher prices for just about anything and everything.

Producers of commodities are receiving more dollars for what they produce. Profits are higher this year than last year. That is the good news. The bad news is that input costs are soaring.

As input costs increase, the feeling of slipping profits is real. What is more real is the potential for losses. Less-than-ideal crops, soaring input costs, or derailed supply of inputs make it easy to pencil in a challenging financial year ahead. As humans, most of us are running multiple scenarios in our minds as we look ahead. There are lots of gray areas for many, as they concern themselves with multiple challenges not experienced in most years. There are no easy answers.

Yet, it is important to control what you can control. If fertilizer shortages occur, there is not much you can do about it. You can, however, manage the higher prices being offered for what you produce, using multiple marketing tools. New-crop prices are trading at or close to contract highs for corn and soybeans. Wheat prices have been volatile, offering multiyear high prices. Livestock and dairy prices are at yearly high levels.

The practice of grow, store, and sell may have worked this past year, and could be challenged in the year ahead.

Use multiple marketing strategies looking forward. Financial planners will often refer to a diversified portfolio, meaning you should have more than just one investment. The key to weathering potential downturns in the market is to diversify your expected production using multiple tools. Take time to plan out different scenarios and ask yourself what your strategy will be in those scenarios. Have conversations with those who can help achieve your goals.

A good place to start is your elevator manager or the buyer of your product. What tools do they offer, how do they work, and what is your commitment and cost?

Consult with an adviser who can help implement the right tool for the right occasion. Determine whether you are satisfied with a price. Or do you want to establish a price floor and leave the upside open for higher value?

There are many questions that can be asked and answered. Dedicating time and energy to this process will likely make you feel confident you are controlling the volatility and price movement rather than uncertainties are controlling you.

You will be likely handling more dollars and more risk in the year ahead. Preparing now to do this may be extremely important to your operation.

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If you have any questions on this Perspective, feel free to contact Bryan Doherty at Total Farm Marketing:  800-334-9779.
 
Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.

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