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Previously published in Western Producer in July 2015
We have gone from some of the wettest years in history to a drought situation in some areas of the Prairies this year. Weather risk is something producers face every year and have very little control over. So what does it mean if you are one of the producers affected by this year’s challenges?
A drought may not be as devastating to your farm as you think.
Hopefully you have taken steps to manage this weather risk by participating in provincial crop insurance, AgriStability or a private insurance offering such as Global Ag Risk Solutions (GARS).
These programs can offer grain producers good protection if they are properly used, but you need to take the time to understand them.
A proper understanding gives producers the necessary information to make sound management decisions on whether to continue trying to salvage what crop is there or possibly mitigating further losses.
Does it make sense to spray for weeds, diseases and insects? If you do spray and production does not improve, how many dollars per acre of these inputs will be covered? How can you answer these questions without knowing where you stand?
Farmers will sometimes say, “I am not spending another dollar on this crop, there is no way I can get it back now.”
Do you know that with certainty?
For example, that statement could be completely false for producers who are in GARS or AgriStability.
Knowing your insurance coverage will also give financial institutions an idea of how things may play out. They can then work with you to plan through whatever cash flow issues you might encounter.
You and your lenders need to know how much insurance you have coming and when you can expect that cash to show up. Insurance such as AgriStability and GARS can take time to fully pay out, and you will need cash flow in the interim to keep your bills paid. Your lenders will be much more friendly if they fully understand your situation.
As well, you might sleep better for the next few months if you understand how the drought is going to affect your farm’s finances.
No one wants to lose money, but it is a relief to know roughly what your loss will be so that you can plan accordingly.
In some cases, you might find that with the proper insurance coverage, you are going to end up with a profit, even though you thought you were going to lose money.
There is no doubt that the programs can be complicated and hard to understand.
However, producers need to take the time to learn more about them and make them part of their overall farm risk management strategy.
An accountant should be able to help you better understand these insurance plans and provide you with some idea of what you can expect for cash flow this year.
Ask them to do this now because you need to know this information. If they can’t provide it, you should be looking for someone who can.
If you want to know more about your situation, please contact your local MNP advisor at www.mnp.ca or call 1.800.661.8097.
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