grain bins
HOPE OR PLAN? Suppose this is your bin and it’s full of 2017 corn. Do you have a plan for when you will start pulling the trigger and selling corn?

4 keys to manage risk in 2018

Know the facts behind your farm, and don’t operate on emotion.

“Hope is not a plan.” Rich Morrison uses the acronym HINAP to represent this phrase, and leaves farmers with this message when he talks about grain marketing. Morrison is a risk adviser for Diversified Services, specializing in price risk management.

Why did he come up with the phrase “Hope is not a plan”? This example sums it up: “A farmer came up to me after a meeting in Wisconsin in December and wanted to know what he should do with his 2015 corn crop still on storage at the elevator,” Morrison says. “He said he was paying 3 cents per bushel per month in storage. That’s 2015 crop!”

Obviously, the farmer didn’t have a plan for selling corn. He was hoping for market rallies — for three years! Instead of hoping, Morrison believes in having a plan based on costs and goals, and executing the plan instead of hoping markets go up.

4-step plan
Nathan Bush, an employee with Greene Crop Consulting, Franklin, Ind., works with farmers on crop consulting, crop insurance and financing. Greene Crop Consulting also works with Diversified Services. After listening to Morrison lay out his HINAP philosophy, Bush offered a four-step plan to help farmers get started on a path toward taking control of risk management for their operation.

1. Know your cost of production. Bush is not talking about a ballpark guess; he’s inferring that you get out pencil and paper or your computer and compute costs to the penny. Use realistic estimates. How much does it cost you to grow a bushel of corn or a bushel of soybeans? Purdue University Extension agricultural economists offer budgets and guides. What really matters is your costs, Bush says. Cost of production can vary from farm to farm.

2. Have a profit goal. Set a realistic goal for profit per acre or profit for the operation for the year, Bush says. Saying you want to make as much money as you can isn’t a true goal. You need numbers so you have a target for the gross revenue you will need to reach that goal.

3. Lock in profit through marketing when you can. Bush offers this example: Suppose you compute your costs, arrive at a profit goal and determine you need about $10 per bushel for soybeans to reach your goal. You set a trigger to begin selling at $10. If beans reach $9.95, realize that’s in your target range. Perhaps you want to begin selling some soybeans at that price.

Morrison notes that if you wait for the actual $10 price, it may not happen on this rally. Millions of bushels wind up sitting in storage bins because someone holds out for an extra few cents, and the market never gets there.

4. Understand the value of crop insurance. Use crop insurance as a risk management tool, Bush says. There are a few changes for 2018, and you want to work with your agent to understand them.

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