“The risk in agriculture today is greater than it has been in the past,” say Purdue University economists Mike Boehlje and Brent Gloy. Although their focus is primarily on crop production, their insight applies to all ag operations. Their analysis of risk management and the ability to capture the opportunity can be summed up in these eight steps:
1. Lock in margins on crop prices and input cost.
2. Buy crop insurance.
3. Fix interest rates on long-term debt.
4. Pay down debt.
5. Hold financial reserves with more working capital or liquid assets to cushion times of financial stress.
6. Buy or bid conservatively if you are purchasing farmland or capital assets or paying cash rents.
7. Grow slow with the use of equity instead of borrowed capital.
8. Invest in operational excellence and cost-control to protect against unprecedented price swings.
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