self-assessment: overview decide that area of operation that need attention develop a plan and a...

Self-Assessment: Overview

• Decide that area of operation that need attention

• Develop a plan and a qualitative self-assessment of those areas

Self-Assessment

• Managing For the Right Risks in Agriculture

• Risk management: choosing among alternatives to reduce the effects of risk.– Evaluating the tradeoff between

changes in risk, expected returns, entrepreneurial freedom and effects on family and labor.

Self-AssessmentSelf Assessment

• Managing for the Right Risks in Agriculture: Business Plan

• Must identify and establish goals• Negotiate and compromise to

determine the most important goals, start with family/business partner goals and then develop business goals so family/partner goals are satisfied.

• Must attach costs to goals• Develop business plan guided by goals• Always manage with goals and

business plant in mind

Self-Assessment: Review

• When creating a business plan, which of the following should you do to start the process?– A. Must identify and establish goals for

your business.

– B. Negotiate and compromise to determine the most

– C. Must attach costs to goals

– D. All of the above.

Self-AssessmentSelf Assessment: Managing for the Right Risks in Agriculture: Production Risk

• Production risk- anything that affects crop yields or livestock performance

• Many of these things are out of our control, but measures can be taken to lower the income variability associated with production risks

• Stable income can make the difference between resilience or business failure

• Two basic strategies to reduce income variability:– Enterprise diversification

– Crop or revenue insurance

Self-Assessment: Review

• What are the basic strategies to try to reduce income variability in agricultural businesses? – A. Enterprise diversification

– B. Livestock performance

– C. Crop yields

– D. Crop or revenue insurance.

Self-AssessmentSelf Assessment: Risk and Resilience in Agriculture: Production Risk

• If choose to make a change in operation, consider the changes:– Do you have the time, labor, capital, and

equipment?

– Who will buy your new product?

– How will you market new product?

• Expect a learning curve and less performance the first year in your plan

Self-Assessment: Managing for the Right Risks in Agriculture: Production Risk

• Do you know your cost of production for each enterprise? ___No ___Yes

• Are you a high or low cost producer compared to benchmark for your area? ___High___Low

• Have you evaluated the risk of current or new enterprises? ___No___Yes

• Have you identified resources needed for new enterprises? ___No___Yes

Self Assessment: Risk and Resilience in Agriculture: Marketing Risk

• Knowing types of price variation for your product and watching market throughout the year can make you a better marketer

• Compare and contrast price with futures price, using basis (basis= cash price- futures price)

• Agricultural futures and options-– Can reduce risk against disastrous

price moves.– With options can still take advantage of

favorable price moves without margin calls

Self-AssessmentSelf Assessment: Risk and Resilience in Agriculture: Marketing Risk

• Develop a marketing plan– Set your annual marketing goals

– Use family and business goals as a guide

– Know cost of production and break-even price

• Determine your “marketing toolbox”– Sell on a cash market

– Basis

– Futures hedge

– Option

– Minimum price or forward contract

Self-AssessmentSelf Assessment: Marketing Risk

Does your marketing plan or program:

• Involve the necessary people?

• Identify/address your financial risk?

• Minimize emotion in marketing decisions?

• Identify who is responsible for each item?

• Identify where prices headed and how that will affect your business?

• Provide for review and flexibility?

Self-AssessmentSelf Assessment: Risk and Resilience in Agriculture: Financial Risk

• Know interest rates of other lenders and load providers

• Shop around and visit with different lenders, particularly for small loan requirements

• This type of information can be used for leverage when meeting with your preferred lender


• Prepare the balance sheet– Assets, liabilities, net worth or owner

equity

• Prepare income statement/profit statement

• Prepare cash flow statement– Summary of cash receipts (inflows) and

expenses (outflows)

• Do a financial ratio analysis


• Have you calculated several key financial ratios?

• Use several years and watch trend for potential problems

• Liquidity- increasing or decreasing?

• Equity- increasing or decreasing?

• Can you meet your debt payments according to your cash flow?

Self-AssessmentSelf Assessment: Risk and Resilience in Agriculture: Legal Risk

• Agricultural contracts:– Know basic rights and duties under

basic contract law

• Does your state require any special provisions for the type of contract you are using?

Self-AssessmentSelf Assessment: Risk and Resilience in Agriculture: Legal Risk

Environmental laws affecting agriculture:

• Clean Water Act– CAFO, AFO, others

• State environmental laws– State water quality, permitting systems, etc.

• Producers should do environmental audit of their operations, learn about laws, take advantage of exemptions or safe harbors

Self-AssessmentSelf Assessment: Review

• Environmental laws are rapidly becoming one of the more important limiting factors for which of the following? Select all that apply.– A. Changing cropping systems

– B. Opening new acres to farming

– C. Managing crops

– D. Establishing livestock operations

Self-AssessmentSelf AssessmentRisk and Resilience in Agriculture: Legal Risk

• Estate planning– Only one out of three operations

successfully transferred to the next generation

– Develop a plan

– Discuss goals of the plan with the family

– Know the value of the estate for tax reasons

– Consult with experts- lawyer, accountant


• Is the contract written or oral?– Oral- Risky

– Written- Resilient

• Are terms spelled out in detail?– Purpose, payment terms, conflict

resolution and special provisions

• Is the contract a “general contract” –Risky?

• Has attorney looked at contract ?– No-Risky

• Investigated for any special state provisions.


• Have you attended programs and gathered information about environmental regulations that affect agriculture in your state?

• Have you done an environmental audit to determine if your operation is in conflict with current laws?

• Have you developed a plan to reduce possible environmental hazards?


• Have you developed goals for transferring operation?

• Have you discussed goals with your family?

• Do you have an estate plan?

• Have you discussed your estate plan with an attorney or other estate specialists?

Self-AssessmentSelf Assessment Risk and Resilience in Agriculture: Human Risk

• Over half of farm and ranch families have intergenerational conflicts

• Economic goals, business operation, and estate transfers can be blocked by unresolved family issues– “If our operation was like a business,

we could fire one or two of our family members, but we cant.”

Self-AssessmentSelf AssessmentRisk and Resilience in Agriculture: Human Risk

• Build skills in interpersonal communications, conflict resolution, problem-solving, decision-making and goal setting.

• Potential strategies:– Family meetings

• Regularly scheduled

• Strive for consensus

• Solve one problem at a time

– Stress management techniques

– If problems too complex to solve by yourself, seek professional help

– Recognize the influence that “personality” has on risk management decisions

• Know your own personality and management style

Self-AssessmentSelf Assessment: Risk and Resilience in Agriculture: Human Risk

Are you an at-risk family?

• Family meetings chaotic, disruptive, no consensus

• Family members interrupt each other or withdraw from family discussions

• Depression and anger common among family members

• Low trust levels, high conflict or violence

Self-AssessmentSelf Assessment: Risk and Resilience in Agriculture: Putting It All Together

• Strategic planning is important

• Strategic planning process should include:– Setting goals

– Mission statement

– Estimate cost of goals

– Incorporate risk management goals into strategic plan

Self-AssessmentSelf Assessment: Risk and Resilience in Agriculture: Putting It All Together

• Incorporate risk management into daily operation of business and management decisions

• Self Assessment and action items in risk management

• Redo assessment and action plan for risk management at least annually.

self-assessment: overview decide that area of operation that need attention develop a plan and a...

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