Ways Of Risk Management Essay

1042 words - 4 pages

Risk is defined as a chance taken during any event. In agriculture we take many risks every day. From the risk of the tractor breaking in the early morning, to the risk of the cows getting onto a busy road during the middle of the night, agriculture is filled with risks. Managing these risks is essential to ensuring the profitability of any agricultural operation. While managing the risks facing a modern farm can sometimes require a few extra minutes or a few dollars, the benefits of managing risk properly are well worth it. Growing up on a family farm, I have had the opportunity to see first hand the importance of having effective risk management strategies in place. The family farm on which I have been raised is typical of most farms in Kentucky. We are a small farm with some flat land, hills, and stepper terrain. These factors encourage one form of risk management strategies, diversification. My SAE project includes fruit production, vegetable production, and forage production. By having many smaller production areas instead of one larger concentrated production area we are able to limit risks. If profits from one production area are decreased due to disease, bad weather, insects, or low prices, profits from the other areas of production can help to limit the amount of income lost. Single production operations are basically gambling in the hope that no elements negatively effect their one crop. While diversification is a sound risk management strategy, it is not the only one. Success or failure of an agricultural operation depends on ones ability to effectively market their products. It is essential to have a sound marketing plan and a method for insuring that one receives the maximum value for their product. In my SAE project, I utilized several strategies to help minimize marketing risks. The most essential marketing tool used in my SAE was the timing of when fruit and vegetable production would hit its highest yields. By matchingproduction times with the point of highest demand for tomatoes and corn, I was able to receive the highest possible price for my produce. While it is impossible to fully control when fruits and vegetables will begin to produce, it is possible to exercise some control by planting on a certain date that in theory would allow the needed amount of time for plants to reach maturity during market highs. However, this is only one of many marketing tools that can be used to manage risks in marketing. The second marketing strategy used in my SAE was storage. While many agricultural products have limited storage time that effects the ability to use storage as a marketing tool, one product in my SAE has an extended life span and can be stored by any farmer. Alfalfa hay can be stored in a barn or hayloft for extended amounts of time without effecting quality. The basic idea of using storage as a risk management tool is that by storing a product a producer can wait until a high price is available for their product and then sell...

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