Top 5 Risks on Your Operation Explained
How well prepared is your operation to manage risk?
For ag operations, oftentimes successful risk management can make the difference between an operation that runs like a well-oiled machine versus one that seems to constantly be swimming just to stay above water.
“Depending on how your operation runs and where you leverage your pain points, then we can help you put together a risk management plan to make sure that you're not going to have big effects from your risk areas,” says Ross Bronson, an ag risk consultant with Redd Summit Advisors, in Kansas State University Beef Cattle Institute Cattle Chat podcast.
Additionally, well-managed risks could make the difference in an operation surviving into the next generation.
Here’s a look at the top five risks found in ag operations:
Legal—such as liability, contractual obligations—This includes typical operational tasks, such as delivery of products, as well as an accident that may have occurred on your operation. In severe cases, this risk factor will be best managed alongside a lawyer who is familiar with agriculture, trustworthy and has your operation’s best interest in mind.
Human—such as employee satisfaction, including family members—Though often overlooked, this risk is an important piece of the puzzle. Is the environment of the operation safe, mentally sound and healthy for all involved? Are family members working on the operation treated fairly compared to other employees?
As Robert Larson, DVM, professor of food animal production medicine at KSU says, “If you actually go back and see why family farms and ranches don't survive another generation, a lot of times it was the human side—family relationship fractures and problems with your landlord and things like that.”
Financial—such as record keeping, as well as taxes, bills and debt—Is your operation actually profitable? Knowing where your operation stands financially through the use of cash-flow statements and balance sheets can be helpful.
Production—utilizing resources to create a sellable return—Looking at your operation, ensure assets are being managed properly and are performing adequately. What is the operation’s average mortality rate of livestock? Are your current bushels per acre comparable to a 10-year average? What changes could be made to increase profit on the operation? Take time to analyze your production practices to ensure your operation returns the most per acre or asset.
Marketing—strategic planning in covering risk of marketable products—Is your current marketing plan providing the best return? Are there value-added programs that could increase profit without increasing labor, time and resources? Forward contracting harvested grain, contracting feed prices at profitable levels and hedging can be ways to manage risks in a commodity-based market.
Which of these areas does your operation do well? Where can your operation improve?
Find a trusted advisor to help you make changes to your operation, if needed, to better manage risk and ensure success in the generations to come.
