What is risk?

[charliep]

Thinking about some other items, I thought I might pose some questions.

1) What is business risk?

2) What is price risk?

3) Why is price risk different from other types of risk your business faces?

3) When does a business have no price risk?

[rockpile]

CharlieP
Some very odd questions there. I'll tell you what risk is, it's wondering if you should cough up the extra dough to purchase the 'spring price endorsement' for red spring wheat on your crop insurance plan (Alberta). At first look, it seemed like a heck of a good deal, but on sober second thought, factoring in US seeding forecasts (driven by US govt programs -proclaimed not production distorting, my rear axle), Minneapolis historical trends, the growth in the currency exchange, and the fact I've never trusted the AB govt to be totally friendly to grain producers, I AM beginning to wonder if this really is much of a deal. Anybody else having second thoughts? By the way Charlie, if you are that preoccupied by risk, don't ever try farming. You have to think positive - plan on how much it will take to make it, not how much it might take to lose it. That and a bit of good luck now and then.
Rockpile

[TOM4CWB]

Charlie;

Risk creates a reward...

If I mitigate all my business and price risk, will I be able to make any profit at all?

I have signed contracts that have no price risk, but there is a reason that an end user will take on this risk;

1. I must IP the crop and store it;

2. I must store the crop till the end user is able to take it from my storage;

3. I must create a product within certain quality spec's as specified by the end-user.

4. I cannot sell this product to anyone else, even if they offered a higher price.

These are all part of the new generation of IP "value added" crops we can participate in... if a marketer trusts my ability to perform the needed tasks to fulfill this contract.

Life is risk...

[wd9]

Risk, Charlie, do you think with crop insurance, price insurance, and FIDP, producers have any risk at all? Compare our risk to opening a store in a mall. How about setting up a software firm, or a high tech production facility. I've seen both sides, farming truly is the greatest business on the planet.

[ALLFARMER]

Farming is no licence to print money. I know a couple who very recently lost there farm to FCC. When they got behind FCC stuck them with a $30,000 penalty and they were done. Hard working, intelligent folks, forced off there family farm in central Alberta.

When you have a large land base, full line of modern equipment, good storage facilities you can be a snow bird. Farming looks easy when your 55/60yrs old and you have owned your land for 25 years. These people can afford the new chev diesel for $58,000 or the new JD 4 wheel drive for $275,000 but have a look around for guys 25/30yrs old they are few.

To set up a software firm you buy 3 computers and you and a couple buddies do some tailored programming to make data easier to manipulate or processes more easy to manipulate & manage and sell it into a specialized market. For example petroleum land companies pay $80,000/ea for a copy of LandMaster a simple piece of software that takes landfile data and puts it into database form. Two months of programming by 2
people.
Debt management and expansion for smaller farms is simply Off Farm Income. And that would not be necessary if farming was such easy money.

[ValueChainFX]

We all have risk, it is how we manage the risk that makes us who we are. In the old days risk was managed by the community in ways we hardly see today. Now we depend on banks and government to manage risk! Since they have an agenda all to there own and really don't care much for the long term welfare of the ag industry, are these the folks that should be building your future, probably not! I believe that until the industry manages the industry risks we will always see smart folks with good skills kicked off their land.

I see some of the industry pulling together with groups like the young farmers. However without the industry investment into your own risk managing group, and "RE-MARKETING" the agri-industry, we will be at the mercy of those with their own agendas'.