Farm Management Minute: Do you have any tools still in the package?
SD Center for Farm/Ranch Management
Do you ever buy, or receive as a gift, a tool that you are apprehensive of using? Today, I’d like you to search your farm management “toolbox” for anything that is similar to being stashed underneath wrenches in a tool chest or may still be by your chair from Christmas gift exchange. I am often guilty on both charges. Most often you are leery of the time it will take to train yourself to use it and the assumption that it is not needed. To spare you from the whole course of evolution, I want you to just think back only one or two generations. 1) Motor vehicles, electricity, running water. 2) Tractor, tractor with “live” power, cab, a/c, all the way to GPS guidance. 3) Advancing stages of agronomy & pest management practices. 4) Telephones in all stages from party line to smart phone. In every step along the way there was an apprehensiveness on their performance and fear of the wasted investment if they didn’t work.
The above paragraph is a reference to some of the risk management tools we have available in agriculture today. If we don’t fully understand how they work, we are leery to try them. That is only the half of it. If a tool doesn’t work or not used properly it can be very costly. As with all of the above innovations, they likely were not or still are not the best choice all of the time. There is a time and a place for a ratchet, impact wrench, or air hammer. But also a simple combination box end /open end wrench can be the adequate or even best tool at any given time.
Often I hear negative comments about the futures and options markets. I feel as though they are fueled by a lack of fully understanding the opportunities and consequences of taking a position of any kind in the marketplace. Yes it is risky and scary, but whether forward contracting, making a cash sale, futures trade, option purchase, storing grain or placing an animal in the pen you have taken a position with some level of price risk. If you have had a negative experience by using any of the items stated in the first paragraph, did you throw it across the yard? If yes, I’ll bet after learning what the problem was you may have found that you had not properly educated yourself or had incorrect expectations of what that particular tool was capable of. Examples: You shouldn’t put a 4’ cheater bar on a 3/8 drive ratchet….. When you first got a loader with a joystick control did you experiment with a full bucket? Take things slow and experiment with an “empty bucket” by making a couple mock trades with margin requirements, cash prices changing etc. from your desk. Whether you use paper, poker chips, or pennies, a visual of your trades changing over a period of time before your eyes may be helpful. I would advise doing more than one commodity.
We had an excellent turn out for our marketing class at MTI earlier this winter. As with any workshop, no matter the level of your experience or knowledge, something often can be cultured just by putting your mind and/or body in a position to learn more. Yes, the market may not seem very attractive for selling. Hence the term risk management. Minimizing losses but being able to capture a raise seems like a great concept. That is why Put options often seem expensive. If you believe it has to go up, there is a position for that.
Please bear in mind your crop insurance policies for the upcoming season. Your agent likely has been in contact with you. I do not have the specifics on each crop’s numbers as that is finalized from February’s markets. Some close assumptions can certainly be made for drafting your policy. Crop insurance is a very important tool in the chest. Some years selecting a 12 point socket may be a better choice than a 6 point. The premiums are subsidized, and your agent works for you so ask any questions you have. Make yourself understand it and use it.
If you are interested in how our farm/ranch management program may be of assistance to your operation, contact me at 605-995-7191, firstname.lastname@example.org or for more information: http://www.sdcfrm.com
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