Producers Encouraged to Consider, Evaluate Need for Risk Management for Crops and Livestock10/31/2016
Risk management is about protecting value, as well as creating value. With volatile cattle markets, and unpredictable weather, it is something producers should consider.
At a risk management workshop in Bridgeport, Neb., Jay Parsons, an ag biosystems economist with the University of Nebraska-Lincoln, encouraged producers to not just consider, but prioritize.
“When times are tight, there is not a lot of protection producers can do because they are already at the bottom of the price cycle,” he said.
In production agriculture, producers can either avoid risk or accept it. Although producers can’t control the unpredictability of the markets, there are ways to partake in some pricing strategies to control the effect it has on their operations. They can also choose to transfer risk outside the business by contracting it or purchasing insurance, Parsons said.
Cattle producers can purchase annual forage insurance or pasture insurance for rangeland and forage. Parsons said these programs are pasture, rainfall and forage insurance programs, based on precipitation. Physical areas are divided into grids, and historical data for each grid is collected and used to determine the expected index value for either precipitation or vegetation greenness.
“The expected grid index is compared to the final grid index,” Parsons said. “Producers may receive an indemnity if the actual final index falls below the trigger grid index, which is adjusted based on the coverage level.”
The annual forage insurance plan provides coverage for annual crops used for livestock feed, including grazing, haying or a combination of the two, grain and grazing, green chop, green chop and grazing and silage. The program is similar to PRF, and covers fall planted forages or spring planted forages. Parsons says it is based on two-month rainfall index intervals with coverage up to 90 percent of normal precipitation.
The 2014 Farm Bill also permanently authorized the Livestock Forage Disaster Program, which provides producers financial assistance if drought affected the land, at a certain level, classified by the U.S. Drought Monitor.
“Assistance provided during periods of the drought under the (Livestock Forage Disaster Program) make payments equal to 60 percent of the monthly feed cost for up to five months,” Parsons said.
With the variations and opportunities available, Parsons recommended producers use the Risk Management Agency website for more information or seek out a knowledgeable Federal Crop Insurance agent.
What about the cattle?
Producers can also purchase Livestock Risk Protection insurance that offers price protection for feeder cattle. But the protection doesn’t cover things like sickness or death. The focus is protection against a wavering economy.
The insurance is available for calves, including steers and heifers. Producers can also obtain coverage for predominantly Brahman and dairy cattle. Two weight ranges are available — less than 600 pounds and 600-900 pounds.
An advantage of this product for producers is the ability to access the expected end value is predicted based on the end of the insurance period, said Jim Jansen, an ag economics extension educator for UNL.
The livestock insurance has different coverage prices and levels, varying from 70-100 percent of the expected end value.
The insurance is available through livestock insurance agents.
Unit cost of production
When deciding on risk protection, unit costs are crucial, said Aaron Berger, a UNL extension specialist.
“(Unit costs) will help you develop a marketing plan, and determine if you need to think about pricing protection or a risk management plan,” he said. “By determining your unit cost of production, you will have the information on your individual enterprises to help make better decisions. It also helps with budgeting. If you know what your costs are for 2016, it can help you project for 2017 and you can make changes or tweak costs by evaluating your inputs.”
Source: The Fencepost