Attendees of the farm management seminar received tips on managing risk from Brian Wittal of Pro Com Marketing in Didsbury.
Knowing cost of production and break-evens is critical, both for “year-end damage control” if things go south and looking at different scenarios in the future.
Record actual yields and average them over several years. Wittal makes all of his clients use spreadsheets for this job.
Include wages (including holidays) in the spreadsheet and all expenses, including things such as electricity.
“Guys hate their premium and shake their head when they see the statements, because it’s big dollars,” said Wittal. “But you’re playing with even bigger dollars on your farm.”
Understand what type of coverage you’re buying (for example, general insurance doesn’t cover all costs) and think about whether you want to ensure anticipated revenue or cost of production. If it’s the latter, you’ll need savings or other revenue to cover your living expenses.
Calculate the return you get from an operating expense, and whether there are ways to become more efficient.
“Expenses are always growing — try to reduce costs and increase your potential,” Wittal said. “It’s all your money in there. You’re carrying that risk and you’re doing it on your own dime.”
Production contracts with active out clauses are a good way to pass off or share risk with those offering the contracts, but they restrict marketing options and limit the producer to one company, said Wittal.
Many producers wait until the grain is in the bin, rather than pre-selling it, because they fear the quantity and quality won’t be there. But that’s swapping one risk for another.
Prices are generally lowest at harvest and so pre-pricing a percentage of the crop allows a producer to sell when markets are higher. However, there’s a buyback risk if you can’t deliver.
Because quality is dependant on Mother Nature, Wittal recommends using a lower grade on some of he pre-priced contracts, especially in the wheat.
“Don’t just contract a No. 1 red if you grow a No. 2 red,” he said. “Contract a few No. 2 reds as well.”