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Five Ways to Reduce Operation Risk
Victoria G. Myers 9/30 4:09 PM

Depending on how a cattle operation is run, and where it is leveraged, each one has its unique risk areas. Ross Bronson, an agent with Redd Summit Advisors out of Utah, helps create plans for ranchers to minimize those risks, all of which can usually be broken down into five key areas.

1. LEGAL. Liability and contractual obligations are most often the pain points Bronson said he sees with ranchers. This includes delivery on product(s) and injuries that might occur on the property.

2. HUMAN. A big topic in all of agriculture, Bronson noted that employee satisfaction has a lot to do with the long-term success of any operation. But he points out that this consideration should be extended to include family members, not just outsiders. "We need to think about how to create an environment where we are safe and mentally sound and healthy, so that our operations can continue forward in a positive way," he explained. Bronson added that when it comes to family, they are not always treated the same as outside employees, and this can be a mistake with potentially serious implications.

"When we go back and see what family farms and ranches don't survive, it's often tied to the human side of the business. Maybe it was a family issue. Maybe it was working with landlords. These issues are addressable, but they have to be recognized because they are communication issues," Bronson stressed. "One of the most common things we see in the area of communication (challenges) is the generational transfer of ownership. Those are hard conversations to have, but they have to happen. Too often we see no plan in place, and there can be serious tax implications as a result."

3. FINANCIALS. This risk area is one Bronson considers a "blanket area" that really covers everything. He said it's about keeping good records, always knowing where the operation is financially and having a plan. "Are you profitable or are you living off operating loans?" he asked. "We have to look at debt, tax bills, all of it, and recognize whether we are unnecessarily creating risk for our operation on the financial side. Too many producers aren't as aware of financials as they should be, and if they were really focused on this area, I think it would drive their marketing programs."

He added: "Most ranchers I know can tell you their average weaning weights or rates for years, because that's what they are all about. But when it comes time to figure profit and loss, a lot of them don't want to be there. They'd rather be on a horse, out on the land. They don't like that office time."

4. PRODUCTION. This area, said Bronson, is the one producers tend to be most passionate about. That doesn't necessarily mean the knowledge is in a place where others can utilize it. "Ask a cattle producer about weaning weights, mortality, or pasture conditions, and he has so much of this knowledge in his head it's amazing. But to really see trends and to learn new ways to manage land, we have to be able to see it more clearly and objectively. This area (of risk) is certainly the one we talk about the most," said Bronson.

5. MARKETING. Selling and protecting against market risk are big issues for any operation. Bronson said it's important to consider how an operation markets and whether it is protecting against market risk with contracts or Livestock Risk Protection (LRP) insurance. He noted that today's high level of interest in consumer-direct sales is a positive, but every rancher can't sell direct for a variety of reasons, including the simple fact that there is not the rail, slaughter, or USDA space to do so.

"Because of that, we also need to look at value-added classifications," he said. "Can your operation access some of these avenues to maximize price?"

STRATEGIES TO IMPLEMENT CHANGE

Bronson told DTN that in his line of work, most of the people he consults with are already thinking progressively, but they may still need a path to make change happen.

"It's important to speak to the profitability of things," he said. "Everyone wants to make more money. If you can translate weaning weights, or Pasture, Range and Forage Insurance into actual revenue you may be losing, it makes a difference. It also empowers the operator by giving them more control."

In addition, Bronson stressed, it's important to consider operation longevity when looking at risk management tools.

"We have to look at our ability to transfer our way of life to generations to come," he said, noting that longevity and profitability are two things that speak most deeply to producers.

"Really, most people don't want to know what they are doing wrong," he said. "But if you can talk about the benefits of change, that's important. This is management versus mitigation. Mitigation is preparing for things to come."

PASTURE, RANGELAND AND FORAGE INSURANCE

One of the lesser-known ways to reduce risk for cattle producers is Pasture, Rangeland and Forage (PRF) Insurance, through USDA's Risk Management Agency. Bronson noted changes have taken place in this program in recent years, making it more accessible to many as a result of shifts in subsidies and when premiums are due.

"This can be an answer for the rancher, whose crop is really grass," explained Bronson. "We don't measure grass production [under PRF Insurance], rather we measure rainfall, because we know there is a strong correlation between rainfall and forage production."

PRF Insurance is based on a 70-year average index for rainfall in a producer's specific covered area. It identifies grids the landscape falls in and insures up to a certain percentage of rainfall for a chosen period. As rainfall drops below a given level, indemnities kick in. Bronson said it's similar to yield insurance for crop farmers. The cost of PRF Insurance depends on county-based rain values. Premiums are subsidized by the UDA depending on the coverage level chosen.

"It's stacked in the rancher's favor," said Bronson. "Most operations [we've looked at] would have a net positive over a 15-year span [for PRF Insurance], so this is a long-term gain. This program is a game-changer for many ranchers."

He added that producers who may be interested in PRF Insurance should talk to an agency before Thanksgiving, as the deadline is Dec. 1.

For more information:

-- USDA's Risk Management Agency: https://www.rma.usda.gov/…

-- Redd Summit Advisors: https://www.reddsummit.com/…

Victoria Myers can be reached at vicki.myers@dtn.com

Follow her on Twitter @myersPF

 
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