Our feelings toward the weather changes with the wind. Get it? Sometimes we pray for rain, other times we curse rain, we pray for sunshine/heat units, and then curse when it gets too hot. That’s never going to change. We know what our crop needs and that’s what we want to happen. I mean, why would you want anything other than what the crop needs? Nobody blames you for wanting what’s best for your crop, but what do you do when the weather doesn’t go your way? What should you look at when you have a weather event that affects yield potential? There is no perfect response, but here are some thoughts as well as a situation I found very interesting.
No we can’t change the weather. Lord, if I could I would be living on a very nice island somewhere. What you can do though, is update your plan as these unfortunate events occur to brace yourself for what might be on the horizon. If you think a certain weather event has impacted yields go ahead and stress your projection to see the impact on the bottom line. Also, I’m not going to be a Debbie Downer – you can also increase yields if you see a bumper crop on the horizon. I just always advise to be as conservative as possible. You’d rather be pleasantly surprised at the end of the year rather than disappointed.
Looking at your plan again after you see changes to your crop to make it something other than an average yield year (because you probably used average yields in your projection right?) will help you make decisions for the rest of the year. Whether it’s ok to spend X on this extraordinary expense or figure out how much a budget overage will affect you with possibly lower yields. One of my favorite lines once again, get ahead of that 8 ball! Run those scenarios and get prepared! If I can help you just give me a holler.
Now for my interesting story:
In speaking to a crop insurance agent this past week he was telling me the story of a cotton client. The client had a hail event that he was predicting (roughly) would have yield potential now of 400lbs. Less than a bale an acre, bless it. Well, it’s actually not as bad as it sounds. In reaching out to his crop insurance agent the grower realized with insurance kicking in and his current hedge positions he will actually be more profitable at 400 than some other yield levels. Yes, this is a unique situation. No, it doesn’t always work out this way. If you were in that position though, wouldn’t you want to know? Y’all see where this is going right? My soapbox I always stand on. It takes a team to run a farm and you need to be in contact with all members and have as much information at your fingertips as possible. The more information you have the more informed decisions you make!! Below is a visual of the scenario I am referencing. Courtesy of Derrik Hobbs (who is a broker as well as risk management advisor for Silveus Financial) so this view incorporates insurance, cost per acre, as well as hedges. Essentially profitability per acre with all those items stacked on top of each other for a real time view of profitability. (Update yields to see crop insurance kick in or update price by executing hedges.) For more info on the information provided by Derrik you can contact him here.
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