Risk management in an uncertain world
Farmers and ranchers are used to dealing with an uncertain world. After all, our very livelihoods depend on that most fickle of mistresses, Mother Nature.
But, since March 2020, that uncertainty has seemed to reach all new levels. A couple of friends put it this way – either we are living in the Twilight Zone or some level of The Hunger Games. No one knows what is going to come next and whether we’re going backwards, forwards or sideways.
One question on most everyone’s mind today is what interest rates are going to do in 2022 and is there anything a producer can do to protect their operation if and when rates rise? The latest report indicates that the Federal Reserve is planning at least three increases in 2022, with some members stating four increases are more likely to combat rising inflation.
Producers should be talking with their financial advisors about the options available to them to manage their debt in a rising rate environment. That may mean locking rates in now for longer periods if you’ve been working with a variable rate. It may also mean utilizing loan programs from the USDA, Small Business Administration and Farm Service Agency that have benefits for specific operators. Having these discussions with your financial advisor now can help you stay ahead of any curveballs thrown in 2022 and beyond.
Another method to mitigate risk to your agricultural operation is to look at alternatives to your usual methods. Perhaps instead of using commercial nitrogen in your farming operation, it’s time to consider poultry litter or a type of cover crop. Have you seen the fertilizer prices? For the cattle producer, should you look at selling via video or contract instead of taking calves to the stockyards?
Maybe you’ve been one of the fortunate producers in the area who doesn’t seem to need crop or livestock insurance to protect your investments, or doesn’t need to utilize the markets with hedging, options and other price protection. But considering the volatility of inputs we’ve seen so far this year – and who knows what else is headed our way – this might be your year to at least consider, if not implement, these tools.
Another tool many use, and some are starting to use even more, is farm diversification. Historically, for most producers this meant the incorporation of both crops and livestock in the farm, but it’s become so much more than that. Cattle producers are beginning to sell straight to the consumer, literally farm-to-table, as the consumer is starting to take a greater interest in knowing where their meat originates. Farmers’ markets are growing by leaps and bounds as producers are discovering new ways to market their products, either in raw form or as value added. Some local farms have uncovered additional income sources by adding farm tours or activities like petting zoos, milking demonstrations, hay and corn mazes, and other creative ideas.
And, sadly for some, the changes to the farming landscape and today’s economic world may mean that it’s time to incorporate outside income into the farm. But with the changing employment landscape as well as the widespread lack of employees, it’s highly possible such a source of income could be worked from the farm – even tractor – instead of going to an office every day.
Whatever 2022 decides to throw our way, we know that farmers, ranchers and others in the agricultural community will persevere. How well we survive will depend on how well we use the resources and tools available to us. Employ your financial advisors and others whose input you trust and value to come up with plans that ensure your agricultural operation stays in business for years to come.
Jessica Allan is an agricultural lender and commercial relationship manager at Guaranty Bank in Carthage and Neosho, Mo. She may be reached at [email protected].
