Managing Risk On The Farm

How do you protect and maximize your investment?  There are two ways we like to help you do that.  You can outsource the management of your farm.  Or you could utilize crop insurance creatively to protect your investment.

Consider A Farm Manager

For a fee, typically 8% to 10%, a farm manager can make sure your farm is operating at an optimum level.  They can determine the best lease arrangement for you.  They can negotiate the farm lease for you.  A farm manager can oversee your tenant farmers usage of your land.  They can put together a projected investment analysis.  They can assist in tax strategies.  A farm manager can determine value of government farm programs.  They can assist you in a succession plan.  They can collect the rental payments.  A farm manager can pay farm related bills.  They will also work in different lease options such as cash rent, share crop or custom farm leases.

Crop Insurance

How does crop insurance work?  It'll insure a fixed volume of grain or revenue for your farm.  It starts with a historical farm yield record.  Typically over ten years.  The insurance will be a percentage of that historical yield.  

Let's do an example.  Let's say 100 bushels is the 10 year average of the farm.  You choose an 85% coverage.  You can choose anywhere from 55% to 85% coverage.  Thus 85 bushels is guaranteed.  Now, let's say 2012 you got a 50 bushel yields.  2012 was the worst drought we've had in the Midwest in fifty years.  Your insurance will pay for 35 bushels.  85 was guaranteed when 50 were harvested.  So you take 85 minus 50 to come up with the 35 bushels.  You would get payed $280 per acre assuming an $8 market price times 35.  Then you would add the 50 bushels at $8 is $400 per acre.  The total revenue would be $680 per acre.  Basically it's the market plus the insurance.

Is it more complicated than that?  Sure.  But I didn't want to hurt your head too much and my capacity for math only extends so far.  As a matter of fact, I try to stick to doing math monkeys can do.

Crop Insurance Is A Landlords Tool

This will help you keep track of how your farm is doing.  It will be a third party hard copy record of the farms production history by year, crop, acreage and yield.  It's a useful tool for income projections and land values.  It can be a measurement of the tenant's performance.  It's added security, tenant oversight and surveillance.   Remember, insurance fraud is a crime so it'll help you from being taken advantage of.  It backstops grain marketing.  Finally, it's an added loan security and guarantees cash flow.