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The macro risks of farming are well known. They include commodity prices, interest rates and weather. Farm producers also face significant risks specific to their operation and circumstances.
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Kit Moore, President and Strategy Consultant with BluePrint CPAs in Chatham, Ont., points to four such risks farmers should be aware of.
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Cost base. Do today’s commodity prices cover your costs? This will vary by farm. “If I bought my farm 10 years ago,” says Moore, “I have vastly higher fixed costs than a family that’s passed the farm down for three generations.”
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Leadership. Imagine a farmer and three grown children cash-cropping 1,500 acres. What’s the risk? “One issue I see often is that the management control, and therefore the know-how, is concentrated in the older generation,” says Moore. “What happens if Dad dies?”
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Reinvestment. If your combine is 15 years old but working well, long may it last. Once you need a new one, however, look out. “You could find that the market value of that capital equipment might be five or six times higher than the last time you bought,” says Moore. “That’s a gigantic risk.”
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Expertise. Many farmers make personal professional development a regular part of their year; others, less so or not at all. Moore sees risk for the latter group. “The business of farming is getting more complex and subject to more competitive forces,” he says, “so it’s important to invest in your own development as a farm manager.”
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Looking for ideas your farm can use?
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*This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.
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