?Today?s farmers are tasked with managing crop and production risks, in addition to finances, marketing and human resources.? -Neil Hoff
Risks are an important part of business and everyday life. Taking wise risks can benefit your business and help you reach and exceed your goals. But, it may be difficult to determine which risks are worth taking. When you?re considering your 2013 crops and investments, there are some risk management techniques to keep in mind for better business in the year to come.
For each decision you make, compare the benefits to the potential risk. Managing risk means thinking through anything that could potentially go wrong in your operation and determining whether or not a control should be used to mitigate that risk.
Today?s farmers are tasked with managing crop and production risks, in addition to finances, marketing and human resources. Not everyone can be good at managing every risk a farm faces. Focus your efforts on your strengths and seek help from groups like CHS Hedging Inc. for managing the rest.
One item farmers will pay particularly close attention to is managing the cost of fuel. In 2013, the price of diesel fuel is projected to average $3.99 a gallon, according to the Department of Energy. One way to limit your risk is to consider utilizing a hedge plan that incorporates bulk purchases, forward contracting, and swaps for Cenex-branded refined fuels.
As you make additional plans for 2013, consider the following nine steps to help manage risk.
1. Determine your financial ability to bear risk based on your balance sheet and income statement; then work with your lender.
2. Understand your psychological ability to bear risk, including preferences for marketing tools such as futures, options and cash sales.
3. Develop next year?s operating plan, including term debt, operating expenses, profit and depreciation.
4. Calculate gross dollars per acre or per head needed to be profitable.
5. Develop a marketing plan.
6. Document sales.
7. Critique the plan at year-end.
8. Shock test plans based on the worst year in the last 15 years.
9. Decide what it takes to survive the worst year.
Source: Russell Consulting Group
What it all comes down to is your financial and psychological ability to bear risk. If you have the budget, you?ll be more inclined to take a risk, but sometimes new options can make a conservative risk taker uneasy. Take this quick quiz to see how much of a risk taker you are.
? Neil Hoff, CHS Manager of Product Marketing for Refined Fuels
Source: http://withyou.cenex.com/blog/managing-risk-for-better-business-in-2013/
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