Managing risk requires records, planning

Nobody, not even four veteran agricultural professionals, can tell farmers how to fully manage risk in today's volatile markets.

But farmers who keep good records and have a targeted rate of return that reflects their production costs will fare better than producers who don't, the ag professionals say.

"Take the time to do the records," says Al Nelson, an AgCountry Farm Credit Services' employee who helps farmers develop profitability plans. "If you're not good at it, hire it done."

It's also crucial to "know your cost of production (and) have a targeted rate of return," says Frayne Olson, North Dakota State University Extension Service farm crops specialist.

Nelson and Olson spoke Feb. 21 at the annual International Crop Expo in Grand Forks, N.D. The two-day event, which began Feb. 20, was sponsored by small grain, soybean and potato groups. It attracted roughly 5,000 people and 200 exhibitors.

Nelson and Olson served on a four-person panel that examined how farmers can manage market risk in volatile times. Also on the panel were Mike Krueger of the Money Farm, a grain marketing advisory firm located near Fargo, N.D., and Paul Coppin, general manager of Reynolds (N.D.) United Co-op.

A number of factors, including political uncertainty, market speculators and tight food stocks worldwide, contribute to the volatility, Krueger says.

At the end of the current marketing year, the world will have only a 45-day supply of corn on hand. "U.S. and world corn supplies have never been at these levels. It's kind of an uncharted territory," he says.

With such tight supplies and so many other factors in play, estimating the price range of corn, wheat and soybeans in the next eight months is extremely difficult, he says.

Krueger estimates that the price of corn could range from $4.50 to $9 per bushel, soybeans from $10 to $20 per bushel and wheat from $7 or $7.50 to $12 per bushel.

Currently, at area grain elevators surveyed weekly by Agweek, wheat sells for an average $7.71 per bushel, corn for an average of $6.76 per bushel and soybeans for an average $13.85.

At the same elevators, the price of new crop wheat averages $7.86 per bushel, with new crop corn averaging $4.95 per bushel and new crop soybeans averaging $11.77 per bushel.

Trying to gauge when prices are at their highest, and then selling at that price, isn't a good strategy, Olson says.

The odds are selling at the highest price are virtually zero, he says.

Records, corn

Nelson cautions farmers against getting greedy and trying, almost certainly in vain, to sell for the highest price.

"Bulls make money, bears make money. Bulls are people who buy the market, bears sell it. And pigs get butchered. Just remember that," he says.

He advises farmers to know their "cash-flow breakeven," a number that takes all expenses into account. When farmers know their expenses, they can develop a profitability plan.

Keeping good records is a vital part of that.

"The No. 1 thing I see most guys missing is recordkeeping," Nelson says. "If you don't know where you're coming from, you can't know where you're going."

Corn's increasing popularity with farmers in the Upper Midwest contributes significantly to volatility in this part of the county, Coppin says.

Corn requires more inputs and storage and a relatively small change in its price can have a big impact on profitability, he says.

With so much volatility in agriculture today, planning is more important than ever, he says.

"Have a plan and stick to it."