As mentioned last month in this column, risk management involves having good records, knowing your breakevens, having gross dollar per acre goals and making good investment decisions. Each component could be done individually, but they won't keep you in business if they're not part of an overall program with a plan.
It's important that your risk management and business plans are written down. Consider this. In 1951, a group of researchers interviewed the graduating class at Yale University. One question asked graduates if they had written goals. Only 3% responded that they had written down goals for their future. In 1971, 20 years later, the researchers interviewed the surviving members of that class. They found that the 3% who had written goals had accumulated more wealth than the other 97% combined!
Written plans don't have to be detailed. In fact, one very successful farmer in Iowa has his marketing plan written on a 3 x 5" card. All that's on that card is a gross dollar per acre goal and a three-point strategy to achieve it. That is: to sell the crop, collect the loan deficiency payment if he can get 20-30"cents" above the loan rate, and look for an opportunity to re-own the crop with a call strategy in late winter or early spring when it looks like prices have bottomed. With marketing goals already written down, his major focus can be looking for points to execute his plan.
Keys to planning:
* Write it down.
* Keep it simple.
* Think through what may go wrong.
* Look for points to execute your plan.
Key factors in developing a marketing plan are to know your costs and the gross income per acre needed to achieve your goals.
A written marketing plan should help you make decisions about when and how to sell your grain and help take the emotion out of those decisions. The market spends two-thirds of its time moving sideways or lower, and if you recognize that before the year starts, it doesn't surprise you when it does it.
Taking the emotion out of executing a plan is key. A written plan allows you to think through the potential scenarios that you will face through the yearly cycle.
For example, have you ever read a book twice? It's not as captivating the second time because you know what's coming. The same thing happens when you have a written plan. When dry, hot weather comes during the summer, you're not caught up in the emotion as much as your neighbor. That's because you have "been there" in thinking through what you have to do to meet your goals.
EDITOR'S NOTE: For more information on the value of written marketing and business plans, be sure to check out the Special Report on risk management in this month's issue of Soybean Digest (pages 19-32.) The report details the basics needed in a good business plan and profiles farmers who have made them work. In addition, the report offers some added tips on crop insurance, a key part of any risk managementplan.
Moe Russell is president of Russell Consulting Group, Panora, IA. Russell previously spend 26 years with Farm Credit Services as a division president. For more risk management tips, check out his Web site at www.russellconsulting.net.