With the importance

of global trade, what would happen to your farm if the U.S. were to lose access to key international markets?

In 2012, drought

had a major impact on many farms. What if drought hits again this year?


can be devastating on a livestock farm. Are you prepared to deal with losses from a major outbreak?

Interest rates

are near historic lows, but could rise significantly. How would a 25-50% increase impact you?

Managing Risk in Agriculture

When it comes to farm management, one key to success is simple: manage your risks.

In order to effectively mitigate risk, today’s farm managers need to be equipped with the tools and knowledge to develop a holistic, integrated approach to risk management.

Farm Risk Resources is a valuable tool for learning how to successfully manage risk in today’s challenging agriculture environment. A partnership between the Purdue University Center for Commercial Agriculture and the Indiana Soybean Alliance, this mini-site includes valuable tools and case studies and is intended to take you through a progression of the fundamental types of risk, theories and strategies you need to succeed.

What Is Risk?

An introduction to basic risk management concepts.


Identify and define the three types of risk: Business, Financial and Strategic.


Analyze your risk situation.


Understand and apply the four main strategies for managing risk: Avoid, Reduce, Assume/Retain and Transfer/Share.


Not sure where to begin? Start with a basic introduction to risk on our What is Risk? page. Or jump right in and take our Risk Assessment Quiz below.

What’s at Risk?

What is risk and why should it matter to you?
Answer the following 15 questions to see what kinds of risk apply to your operation.


Were your yields below average in 2012?

About 80% of agricultural land experienced drought in 2012—making it the most extensive drought since the 1950s (ERS USDA). Production problems like drought can’t always be predicted, but you can protect your operation by putting management strategies in place to help your farm survive.


Have you locked in prices to cover your input costs?

In addition to commodity price fluctuations, input costs are often volatile. Rather than treat costs and earnings separately, manage them jointly by locking in the price of future inputs like fertilizer and fuel, as well as locking in a price for products you sell, like corn and soybeans.


Are you protected if you or an employee were to be accused of negligence?

Not having adequate casualty insurance can be devastating to a farm operation. Most farms have a substantial asset base, which can become a target in a lawsuit. Having to liquidate assets to pay a claim could have irreparable effects on a farm’s business.


Are you involved in an enterprise that may be prone to environmental regulations?

Failure to abide by environmental regulations exposes a farm business to the risk of financial penalties and can result in imposition of unplanned costly expenditures to meet regulatory standards—or even forced shutdown of a production site.


Are you currently operating machinery that is technologically out of date?

Larger machines, new technology and higher prices for both parts and energy have all caused machinery and power costs to rise in recent years. Making smart decisions about how to acquire new machinery, when to trade and how much capacity to invest in can reduce overall costs.


Do you currently lease a portion of your land?

Leasing lets farmers reach efficient scales of operation without owning all the land they farm. You should regularly evaluate whether or not a lease is fair and equitable to both parties, as losing a landlord can be devastating if you are operating on a large percentage of rented land.


Do you currently employ anyone other than yourself?

Managing family or non-family labor in a farm operation can pose a number of challenges, including tax and regulatory aspects, as well as interpersonal issues. It is important to recruit, motivate and retain quality people for the success of your business.


Are you or your financial institution concerned about the amount of debt used to finance your assets?

Leveraging magnifies profits when the returns from an asset more than offset the costs of borrowing. However, it is important to note that leverage also magnifies losses during a downturn.


Do you have any variable interest rate loans?

Variable interest rates fluctuate because they are based on an ever changing, underlying benchmark interest rate or index. Variable rates are often lower than fixed rates, providing an opportunity for loan payments to fall if the underlying rate declines—or cash flow problems if it rises.


If needed, can your assets quickly be turned into cash?

Positive working capital is required to ensure that a farm has sufficient funds available to satisfy both short-term debt and upcoming operating expenses. Management of working capital involves managing inventories, accounts receivable and payable, and cash.


Have you completed a whole-farm budget in the last 12 months?

Whole-farm budgets identify major parts of the total farm business, determining relationships among them, both individually and as a whole. Enterprise and partial budgets can be used to analyze components or evaluate changes to the whole-farm budget, but neither is an acceptable substitute.


In the last 12 months, have you analyzed each of your business enterprises to ensure they are still a key factor in your success?

Regularly evaluating every enterprise you are involved in can help identify areas of weakness that may require change. For example, you might decide to downsize or exit a particular enterprise, or see an opportunity to increase your farm’s profitability by expanding one.


Do you regularly stay informed about domestic and international policy as related to your industry?

Being aware of external forces, such as domestic and international policy can prepare you to make decisions that will position your farm for success whenever there are changes in the economic environment.


Do you have the knowledge and tools to adapt to a changing marketplace?

Do you know your strengths and weaknesses? What about the strengths and weaknesses of your employees? One key to success is having a balanced management team equipped with the ability to respond to change.


Have you considered how your products or services bring value to your customers?

Proper product or service positioning can set you and your business apart from competitors. For example, are there services that you can provide a landowner that other farmers in your community don’t usually provide?


Based on your answers, you may want to learn more about: