Risk management may not be “a real joyful thing to do,” but it’s a necessary evil if you hope to farm successfully, says a longtime central Alberta farmer.
“I know in our own business that we go further, faster when there’s good, solid risk management in place,” Don Macyk said at the Feed Coalition workshop in February.
“Our competitiveness is at risk without solid risk management capacity.”
Macyk said he has employed “every risk management tool there is to use” on his farm near Waskatenau northeast of Edmonton. He defines risk as “anything that gets in the way of you achieving your goals,” and spoke of three types of risk.
The first is “risk beyond our control.”
“You have to have some capacity in your business to deal with what might happen when you don’t have any idea what might be coming at you,” he said. “It might be a 2015 drought, or it might be a volcano in the Philippines that gives us only 80 or 90 per cent of our usual heat units to produce a crop.
“I’m not sure you should spend a lot of time at home thinking about it, but the capacity to deal with things that are unexpected has to be there.”
Insurable risks are next on the list.
“You have to assess the risk that insurance covers for you on the basis of what you’re prepared to live with and what you’re not prepared to live with,” said Macyk. “But generally speaking, with the government kicking in 60 per cent on programs like crop and hail and production insurance, it’s pretty hard to make a decision not to go with them.”
Then there’s “all the rest” of the other risks out there, including management options, marketing, and farm safety.
“There’s always a decision,” he said. “It’s either do something about it, or don’t do something about it. Know why you didn’t do it, and have a good explanation if things don’t work out.”
That’s Macyk’s approach to grain marketing, where he uses tools like futures markets and forward pricing to “create a less risky situation” for his farm.
“We won’t plant a crop if it results in losses,” he said. “Maybe we don’t always sell at the highest price, but when that crop goes in the ground, there’s a good portion of it priced before we turn the wheels.”
About 40 per cent of his 2015 crop is already “forward-sold and in a positive position,” he said.
“Yes, it’s not a pleasant thing to deliver $12 canola when other guys are unloading $16 canola in front of you, but it happens,” he said. “And I accept the consequence of that as part of taking the strategy forward that we have in our operation.”
Developing that strategy is essential, he said.
“Is risk management anything other than good management? I don’t know,” said Macyk. “But I do know that you have at least some kind of plan and a process to keep current with respect to your risks. That way, your goals and accountabilities and choices are clear.”
And producers who are “serious about risk management” need to conduct a formal review of their farm’s risks every year.
“Somebody has to be responsible for it. If you don’t have somebody responsible for it, it falls between the cracks.”
By Jennifer Blair
Source: Alberta Farmer Express