Grain farmers are encouraged to use crop insurance and price risk tools to mitigate revenue risk. The benefit of insurance or hedging is not appreciated in outcomes of higher prices or above average yields. Some farmers may view their risk plan as a failure whenever the risk tools purchased where not used. The benefit of risk protection in a year with lower than expected yields or lower market prices can place a farm on a better financial path to return to profitability as compared to farms lacking risk protection.
This poster will simulate the multiple year benefits on farm revenue and cash flow from the continual use of revenue protection corn and soybean farm. The use of crop insurance, forward contracting and hedging at defined pricing targets will be compared to the simulated returns of a farm using lower insurance coverage and no price protection. The simulation will incorporate yield risk and price risk over a five-year period. The simulated change in net returns and change in the use of operating debt to meet cash deficits will be reported.
The results from this simulation model are incorporated into risk management workshops to illustrate that evaluating the success of a risk management plan requires thinking beyond one growing season. Some beginning farmers and agricultural lenders have not experienced commodity cycles. Framing the use of risk management products with multi-year profitability and cash flow helps remind farmers and lenders that risk products can provide benefits beyond one growing season.
|Conference||2018 Extension Risk Management Education National Conference|