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How to manage farm risks
Farming is a risky business. With changing policies, weather events, global dynamics, and other factors beyond a farmer’s control, it feels less and less predictable each year. While market volatility has been part of agriculture for decades, today’s commodity prices react even more quickly to the influences of a world market, underscoring the need for a strong risk management strategy.
As Agri business advisors, we have been on the front lines of helping producers strengthen their operations, protect their margins, and offset ag market risk. Pinion SA’s advisors share how to manage your top three farm risks: profitability, market risks and cash flow.
1. Know your profitability
One of the most important criteria for making marketing decisions is knowing profitability. “The producer who markets without a good handle on this type of data is more likely to make risk management decisions “reactively” based on emotion, and less likely to make “proactive” decisions based on profitability, which is the real goal of good risk management,” says Eric Osterhaus, Pinion ag marketing strategist.
Pinion Pro Tip: Work with a strategic advisor to identify your costs of production, break-evens, and production estimates – the primary drivers in a good marketing plan.
2. Identify potential market risks and opportunities
The impacts of geopolitical activity, rising input costs, and extreme weather point to volatility ahead, so it’s critical to understand how factors like this could affect your operation. “What if you can’t get the parts or supplies you need? Do you have crop insurance or a livestock loss program in place?” asks Pinion ag advisor, Thomas Eatherly. “If you lose your buyer or customer, where else could you sell?” It’s less about watching for the sky to fall – and more about preparing for a rainy day to mitigate impact.
Pinion Pro Tip: Understand your risk factors, mitigate their impacts, and pursue opportunities and solutions to weather ever-changing markets.
3. Build up and manage cash flow
Cash is king on the farm – especially in a crisis, downturn in the market or other unforeseeable event. Cash and cash flow are going to get your business where you want it to go, despite the uncertainty that you face. “I encourage farmers to get access to cash and capital when you don’t need it, so it’s ready when you do need it,” advises Pinion finance and growth consultant, Peter Martin. “Don’t be afraid to take on a little bit of leverage, especially if it’s used to backstop your working capital.”
Pinion Pro Tip: Focus on improving your cash flow. Examine expenses to increase your profitability and cut the extra fluff, revisit your debt schedule to see if you can optimize your structure, and invest in ways to control your inventory, such as on-farm storage.
Why should you manage your farm risks
Uncontrolled risks can threaten your productivity, profits, and long-term sustainability. By addressing these risks early, you protect your workers, animals, and assets, while also ensuring compliance with legal requirements and maintaining financial stability. Ultimately, good risk management safeguards both your livelihood and your farm’s future.
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At Pinion SA, we partner with clients to deliver a comprehensive suite of services, including tax, business and agri-consulting, advisory, wealth management, and compliance solutions to meet all your business support needs. Our core values of Accountability, Excellence, and Innovation drive everything we do, ensuring that you receive the highest level of service and expertise.
Visit our website and see more about what we offer or contact info@pinionza.com for more information.