Life happens. And when you’re not prepared, even small things can trip you up. The big things? Well, if you don’t have them on your radar, you can be totally screwed, and your farm’s production and profitability shut down. Recognizing risk is the first step to keeping agriculture profitable.
Any emergency preparation expert will tell you that having a plan is the best armor, so here’s our list of 12 things that could trip you up in 2012. It’s up to you to do something about it.
1. Severe weather
We saw flooding in 2011 and rains that just wouldn’t quit. Hope you had crop insurance. Grant Edwards, a crop insurance specialist with Farm Credit Services of Mid-America, said insurance may be the only way to keep an operation afloat when a disaster occurs.
Crop hail insurance is additional coverage over and above your federal crop insurance plan and may be something a farmer may want to consider, too, Edwards says. It not only provides additional protection from a hail event, but also through endorsements such as: field fire, barn fire, wind protection, fire department service charge protection, transit and stored grain protection, replanting coverage and vandalism coverage.
2. High and low grain prices
A revenue protection plan is a multi-peril crop insurance plan option that protects farmers against revenue loss caused by low yields and/or low prices. Crop insurance specialist Grant Edwards said this plan locks in your minimum per-acre revenue in the spring, which makes it a flexible and efficient management tool to crop producers.
The futures market is also a way to manage your farm risk.
3. Inputs and costs
Knowing input costs can be an important factor in selecting the appropriate coverage level for a producer. Crop insurance specialist Edwards said if producers know what their input costs are, their crop insurance policy can be tailored to protect them in case of a disaster.
4. Record keeping
You need to keep planting and harvest records, grain settlement statements, employee records, inventories of livestock and feed and equipment, weather conditions when you’re spraying, financial statements, and records on just about everything. They’re not just a pain, these number can actually help you manage your farm, if you pay attention to them. And you do NOT want to get behind.
5. Financial planning
Peggy Kirk Hall, Ohio State University’s ag law director, said farmers should consider a financial checkup in 2012, to review changes in tax laws, and assets, with a financial expert.
“I think it’s really important to get in and get a checkup on where your respective estate is at this point and time and how you may need to do some planning,” she said.
Hall said the ending of Ohio’s estate tax, new wealth from oil and gas drilling, and social changes like divorce and marriage can all have a significant effect on a farmer’s financial standing.
6. Expect the unexpected
A farm disaster, or emergency situation is the last thing you want to plan for, but a plan is the next best thing to insurance.
First things first: It’s about people, not things. The safety of family members, workers and emergency response personnel is the first step.
Inventory, inventory, inventory: Make sure you have a comprehensive accounting of livestock, property, and potentially hazardous substances. Keep a list of machinery and equipment, including make and model number. Livestock records should be up-to-date, and animal identification tags on all animals.
Consider backing up your computerized farm records offsite (you do back up your computer records, don’t you?). And you do have an updated list of emergency phone numbers, right?
Draw a map of your farm site, including buildings, roads/lanes, fences, locations of livestock, locations of chemicals/fuel.
What hazards are most likely to impact your farm? Are you ready for them? How much feed do you need for your livestock? How will you transport them if you need to move them in a hurry, and which ones get priority?
7. Labor crisis? What labor crisis?
Labor issues can trip you up faster than you can say, “You’re fired.” We often think about input and price risk, weather risk and credit risk, but a stable labor supply is a risk factor that concerns most farmers — and affects long-term investment and management decisions.
Nationally, it’s a huge problem, as Robert A. Smith, senior vice president with Farm Credit East told a Senate Judiciary Subcommittee in October.
“If, as a country, we fail to find a workable solution to enable labor-intensive agriculture to maintain the necessary workforce, we will see another part of our economy (dairy, fruit, vegetable and other specialty crops) move off-shore…,” Smith testified.
“It has become clear that even with 9 percent unemployment, U.S. workers do not seek, nor do they stay in farm jobs.”
You may not be directly impacted by the immigrant farm worker policies, but you are affected by a stable local workforce. How solid are your recruitment, training and retention efforts? It takes some attention, and if you ignore it, you’re going to get tripped up.
8. Oh yeah, the farm bill
Before you get busy with planting and the rest of the farm year’s activities, you might want to read up on the farm bill to be written this year.
After the Congressional “super committee” failed to reach a compromise (that included a farm bill measure) in November, it’s back to the drawing board for bill writers — and that includes budget bill writers, because more than just the ag committee’s input will affect the new farm bill. Deficit spending is now a major fundamental reality that is writing any bill coming off Capitol Hill these days, and, as Adam Sharp, vice president for public policy with the Ohio Farm Bureau Federation, reminded us in December, “Farm programs have a big target on their back.”
Look for changes in risk management, specifically. And don’t expect any farm bill program to guarantee you a profit.
9. Taxes/Cash Flow
The farm sector’s debt-to-asset ration has fallen to record lows, and recent profits — although volatile — have strengthened the farm balance sheet. But Paul Ellinger, University of Illinois, suggests young farmers, large farmers and livestock producers are vulnerable to “significant financial stress” if incomes fall 20 to 30 percent.
One bottom line: Working capital is the best hedge against all farm risks.
The flip side to that bottom line: Conservative management (maintaining large reserves of working capital) can prevent investments needed to grow long-term, and that can trip you up, too.
Carlton Steiner (also known as C.K.) is the owner of Lowe & Young Inc. of Wooster, Ohio, wants you to pay attention to your equipment, but he says the biggest issue with farm equipment is “keeping up with government regulations and the new tax codes.”
He advises farmers to work with their accountants and attorneys to keep up with the changes, and avoid end-of-year tax surprises.
11. Consumer attitudes
Jack Advent, executive director of Ohio Veterinary Medical Association, said livestock producers should “be cognizant of the changes that are out there in terms of the external environment.”
From a veterinarian’s perspective, he said producers need to be aware of “the way people are looking at the way food is raised,” and “be willing to look at potential changes.”
12. International markets
“While many in agriculture have enjoyed booming profits in recent years, market risks have soared amid high and volatile commodity prices,” wrote Jason Henderson, Omaha Branch Executive for the Federal Reserve Bank of Kansas City. In an article for Main Street Economist, he writes that strong global demand has created a new “golden era” for agriculture, but one that could amount to “fool’s gold” if market risks are not carefully managed.
And everyone’s watching China. Carefully. Economic growth in this Asian giant would push commodity prices higher, but, conversely, sluggishness could dampen ag demand and prices.