Agriculture is undoubtedly one of the most important industries in the world. Without it, society wouldn’t have enough food to eat, clothiers wouldn’t have much in the way of textiles for garments, and millions of farmers wouldn’t be able to support their families financially. Unfortunately, farmers routinely have to deal with risk, as they’re unable to predict highly important variables like weather and disease outbreaks. Here are a few ways that farmers manage risk.
Commodities Futures Help Reduce Risk
Livestock risk management brokers help farmers deal with risk by helping them sell commodity futures. For example, if a hog farmer wants to reduce risk in a market that currently sells lean hogs for $0.79 per pound, he might work with his livestock risk management brokers to sell futures at their current price. He’s taking a risk, as the price of lean hogs could go up by the time they mature, leaving the farmer out of money he could have earned. However, farmers frequently trust livestock risk management brokers to lock in the price of their products ahead of time to cut down risk.
Investing in Storage Facilities for Crop Yields
A common strategy for reducing risk in agriculture is storing grain. For example, once it’s harvested, farmers store the grain and wait until the price of grain on the market becomes favorable before trying to make a sale. Even though such facilities cost money, shelling out money on storage bins and the technology to operate them properly is a solid way to reduce risk.
Federal Crop Insurance
The United States federal government recognizes that farmers inherently welcome risk as part of their jobs. Since the U.S. economy is bolstered by ag producers, the government offers affordable crop insurance to keep farmers from entering other industries for employment. In the case of unfavorable weather patterns or other disasters that reduce crop production, farmers can get a subsidy for the projected loss.
For more information about risk mitigation Compass Ag Solutions in Fort Collins, contact us today. We know exactly what it takes to properly manage risk on your farm.
