Crop Insurance Today August 2013 - (Page 20)

CropInsurance TODAY Incorporating Crop Insurance Decisions into a Risk Management Plan By H. Doug Jose, Extension Farm Management Specialist Emeritus, University of Nebraska-Lincoln and Laurence Crane, Vice President, Program Outreach and Risk Management Education, NCIS Recent events have demonstrated that many forms of risk are prevalent in agriculture. These risks often compound the financial impacts for farm business managers. In 2012 a major drought plagued much of the country, particularly the Mid-West. In 2013, the same areas had excellent spring moisture while some areas have had excess moisture. These weather oscillations have resulted in record high commodity prices in 2012-13 and declining new crop prices in 2013 as we go to press. For an individual farm manager, risk management involves optimizing expected returns subject to the risks involved and the risk tolerance of the operator. The consequences of their decisions are generally not known when the decisions are made. Furthermore, the outcome may be better or worse than expected. The two situations that most concern agriculture producers are: 1) a high probability of adverse consequences; and, 2) would those adverse consequences significantly disrupt the business? Risk is what makes it possible to make a 20 AUGUST2013 profit. If there was no risk, there would be no return to the ability to successfully manage it. For each decision there is a risk-return trade-off. Anytime there is a possibility of loss (risk), there should also be an opportunity for profit. Growers must decide between different alternatives with various levels of risk. Those alternatives with minimum risk may generate little profit. Those alternatives with high risk may generate the greatest possible return but may carry more risk than the producer will wish to bear. The preferred and optimal choice must balance potential for profit and the risk of loss. Because of the multiple sources of risk faced by producers, comprehensive strategies that integrate several responses to variability are often necessary for effective risk management. The particular combination used by an individual farmer will depend on the individual’s situation, the types of risk faced, and the risk attitudes or preferences. Some risk responses such as vaccinations, preventative maintenance, feed inventories, and irrigation act primarily to reduce the chance that an adverse event such as disease, breakdown, and drought will occur. Other responses have the effect of providing protection against adverse consequences by transferring some of the risk to someone else such as insurance and forward pricing. Producers find many different ways to implement these principal risk responses. The products offered through the crop in- Dr. Art Barnaby leads a discussion at a Crop Insurance Conference.

Table of Contents for the Digital Edition of Crop Insurance Today August 2013

"It could be, it might be, it is!" Baseball Insights for Crop Insurance
The PRISM Climate and Weather System An Introduction
Crop Insurance In Action
2012 U.S. Crop-Hail & MPCI Loss Ratio By State
2012 Research Review
Incorporating Crop Insurance Decisions into a Risk Management Plan
Step 10-Documenting, Sharing and Revising
Dave Snider Retires

Crop Insurance Today August 2013

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