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Managing Risk in the Livestock Business

Managing Risk in the Livestock Business. Curt Lacy Extension Economist University of Georgia Tifton, GA. Top 10 Reasons Farmers Don’t Manage Risk. There’s no free cap or jacket I’m waiting for my neighbors to try it The media created El Nino/La Nina Crop failures build character

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Managing Risk in the Livestock Business

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  1. Managing Risk in the Livestock Business Curt Lacy Extension Economist University of Georgia Tifton, GA

  2. Top 10 Reasons Farmers Don’t Manage Risk • There’s no free cap or jacket • I’m waiting for my neighbors to try it • The media created El Nino/La Nina • Crop failures build character • It’s 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

  3. What is Risk? Risk – Uncertain consequences, particularly exposure to unfavorable consequences.

  4. What are some common risks we take?

  5. Types of Agricultural Risks • Production • Price • Legal • Human Resources

  6. Types of Agricultural Risks • Production • Weather • Disease • Genetics • Feed • Other

  7. 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

  8. Types of Agricultural Risks • Legal • Liabilities • Taxes

  9. Types of Agricultural Risks • Human Resources • Dependability • Quality of work

  10. Do we want to eliminate risk? NO!! We want to Manage risk

  11. 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

  12. 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

  13. Know Your Expected Profits - Budgets

  14. 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

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