Plan ahead for crop market risk protection

There is no seasonality when it comes to having a risk management plan.

Ryan Milhollin, Extension ag business specialist with the University of Missouri, said farmers always need to take the time to assess risk.

“You need to identify your key risks and how you might be able to control those,” he said. “Focus on the big risks first. It can be anything from input to labor costs.”

Milhollin said many farmers may choose to transfer the risk by using an insurance product, such as crop insurance or livestock protection insurance.

He said it’s important that everybody connected to the farming operation is aware of the plan.

“I think it’s a good idea to have that written down and posted somewhere where everyone can see it,” he said. “At the very least you need to have it sketched out on a piece of paper so you have a plan in place and know what to do to lessen risk.”

Milhollin said some risk is unavoidable, such as bad weather. But having a plan will reduce the chance of a catastrophic surprise.

“You should have a Plan A and even a Plan B,” he said.

Farmers also need to know when to put the risk management plan in place, said Chad Hart, Extension grain marketing economist with Iowa State University.

For example, farmers need to manage crop marketing risk with harvest on the horizon, Hart said.

“At this time of year, the prices tend to be the lowest,” he said. “You don’t want to do much now when it comes to pricing the crop. Have a strategy in place to take advantage of a pricing opportunity when it comes along.”

Hart said producers could look at something like a basis contract.

The USDA is predicting a record crop, but that remains to be seen. Hart said drought and disease pressure likely will impact yields once the combines start rolling.