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Managing Financial Risk in Agriculture

Summary

Farmers and ranchers deal with a significant amount of uncertainty every day. From not knowing what the weather will be like this year to wondering if market prices will increase or decrease tomorrow, agricultural producers are forced to make decisions based on imperfect information. Born out of this uncertainty is the possibility of injury or loss. Risk can be defined as the possibility of adverse outcomes due to uncertainty and imperfect knowledge in decision making. Each time a farmer plants his fields it is possible the weather will destroy his crops. Each time a feed-lot operation purchases calves, they risk a loss if market beef prices fall. And each time a dairy producer milks cows, he risks being kicked in the face.