Managing Risk in the Livestock Business

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Managing Risk in the Livestock Business

• Curt Lacy
• Extension Economist
• University of Georgia
• Tifton, GA

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Top 10 Reasons Farmers Dont Manage Risk

• Theres no free cap or jacket
• Im waiting for my neighbors to try it
• The media created El Nino/La Nina
• Crop failures build character
• Its more fun to keep my lender guessing about my
  ability to repay
• I probably deserve a total crop loss
• Sleeping too soundly would make my spouse
  wonder.
• The IRS would take the profits anyway
• My children would just fight over the estate
• Life would be dull without daily doses of fear

Source Farm Futures
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What is Risk?
Risk Uncertain consequences, particularly
exposure to unfavorable consequences.
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What are some common risks we take?
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Types of Agricultural Risks

• Production
• Price
• Legal
• Human Resources

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Types of Agricultural Risks

• Production
• Weather
• Disease
• Genetics
• Feed
• Other

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Types of Agricultural Risks

• Price
• Sales price goes down
• Sales price goes up,..after you sell
• Discounts
• Input prices go up
• Input prices go down,..after you buy

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Types of Agricultural Risks

• Legal
• Liabilities
• Taxes

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Types of Agricultural Risks

• Human Resources
• Dependability
• Quality of work

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Do we want to eliminate risk?
NO!!
We want to Manage risk
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Managing Risk in Livestock

• Price
• Follow recommended production/vet practices
• Use good genetics in your herd
• Know when to sell
• Know when not to sell
• Become familiar with the various marketing
  methods
• Video Board Sales/Internet Auctions
• Cooperatives/Alliances
• Retained Ownership
• Custom grazing
• Others
• Learn how to use futures and options to buy and
  sell
• Know your cost of production

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Managing Risk in Livestock

• Know your expected profit
• Know your cost of production
• Be realistic about prices
• Know what price you can take
• Cover variable costs
• Total costs

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Know Your Expected Profits - Budgets
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Summary

• Producers face risk everyday
• Managing risk, not eliminating it should be
  producers objective
• There are numerous alternatives that producers
  can use to manage risk