Agricultural production always has been a high-risk business, and its getting riskier. Weather patterns are changing, globalization is changing markets, and several legislative initiatives, including the 1996 Farm Act, have greatly changed government programs.
Farmers who survive todays risk-fraught economic climate to farm another year, and another and another, are those who manage risk well.
And, thats where the Pacific Northwest Risk Management Education Project comes in. This three-state effort involves a broad coalition of the three land-grant universities and many other public and private organizations which united to help cereal grain growers improve or develop risk management skills. Although the primary focus is on cereal grain, much of the curriculum also is applicable to producers of other commodities.
Workshops and a World Wide Web site are principal educational tools.
Extensions Jonathan Newkirk, says three interrelated areas of risk are combined under the heading of risk management. They are financial risk, market (or price) risk, and production risk. Newkirk is project manager and serves as USDA/Cooperative State Research, Education, and Extension Services western regional coordinator for risk management education. The region serves 13 states.
During the winter of 1998-99, a series of risk management workshops were held in each of the three states to provide useful materials and concepts to wheat producers. The private and public partnerships developed through this project were key in delivering the workshops and creating a self-study curriculum, which is available on the Web at <http://pnw-ag.wsu.edu/risk>.
Newkirk says risk isnt a dirty, four-letter word. Increased risks in todays economic environment not only increase the chance that farmers may lose money, they provide opportunities to increase profits.
Many people avoid risk because it adds stress, and risk management involves time, effort, and money, Newkirk says. He warns that the new, higher-risk economy makes it dangerous for producers to try to conduct business as usual. Failure to prepare adds to risks and will make it more difficult for producers to cope with 21st century farming.
Curriculum on the risk management Web site outlines the elements of risk management and says economic returns from effective risk management should increase in the future. Tools on the Web site help producers
- Analyze their farms risk bearing capacity
- Identify and prioritize sources of risk
- Learn to use risk management tools and strategies
- Select and implement a risk management plan
One of the teaching tools is a model 1,500-acre dryland grain operation. Data for spreadsheets and analysis tools are provided for producers to learn the principles of risk management.
Once producers learn to assess their riskand this must be done on an operation by operation basisthey have to learn how to manage those risks. There are chapters on managing both production risks and financial risks.
The chapter on financial risks includes managing credit and liquid reserves, interest rate plans, structuring debt repayment and lease terms, and risks. Analysis of investment in grain storage facilities is also treated.
The computerized decision aids chapter provides five software applications to help producers with various aspects of record keeping and analysis, including market analysis. Yet another chapter provides down-loadable tables and charts of historical grain market information useful in developing marketing plans. A database includes grain prices from 1980 through 1999 on soft white wheat, dark northern spring, soft red, corn and barley. They include both cash and futures.
The project is advised by a coordinating committee, which includes representatives from
- Country Hedging Inc.
- Columbia River Bank
- Farm Credit Services
- Idaho Grain Producers Association
- Intertribal Agriculture Council
- NCIS Regional Insurance Companies
- NW Farm Management Instructors
- University of Idaho Cooperative Extension System
- Oregon State University Extension Service
- Oregon Wheat Growers League
- USDA Risk Management Agency, Spokane Regional Office
- Washington Association of Wheat Growers
- Washington State University Cooperative Extension
This project recently received the
Western Agricultural Economics Associations Outstanding Extension Program Award.