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Strangely enough, 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 that 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, especially if you have taken some steps to manage this weather risk by participating in Crop Insurance, AgriStability, Global Ag Risk Solutions (GARS), Just Solutions (ARRM) or some combination of these programs. For grain producers, these programs can offer some very good protection if they are properly used—but you need to take the time to understand them.
One of the benefits of having a proper understanding is you will have the necessary information to make sound management decisions on whether to continue trying to salvage what crop is there or possibly mitigate any further losses. Does it make sense to spray for weeds, fungicide, or bugs, and if you do, and the production does not improve, how many dollars / acre of these inputs will be covered? How can you answer these questions without knowing where you stand? I hear comments all the time, such as “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? If you are in GARS or AgriStability, that belief may be wrong.
Another benefit of knowing what insurance coverage you have is that your financial institution will have an idea of how things may play out and can work with you to plan through whatever cash flow issues you might encounter. Your lenders and you need to know how much insurance you have coming and when you can expect that cash to show up. Some programs like AgriStability and GARS can take some time to fully pay out and so you will need cash flow in the interim to keep your bills paid. Your lenders will be much more amenable if they know and fully understand your situation.
And last but not least—and possibly the most important benefit of all—you just might sleep better for the next few months by understanding how the drought is going to affect your farm and your livelihood. While no one wants to lose money, it is a relief to know roughly what your loss will be so that you can plan accordingly. And 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, you as a producer need to take the time to learn more about them and how they are beneficial as a part of your overall farm risk management strategy. Your accountant should be able to help you better understand them and provide you with some idea of what you can expect for cash flow this year. Challenge them to do this for you now, as you need to know this information sooner than later. If they can’t provide it, consider speaking with someone who can.
If you want to know more about your situation, please contact a local MNP advisor or call 1.800.661.8097.
Related Topics:Farmers; AgriStability; Risk Series
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