Risk management help in Arkansas: Two universities join forces in farm family education program

Two Arkansas universities are helping soften the blow for eastern Arkansas row crop farmers hit by hard times in the 1990s. They have set up a program to provide free education to farm families to help them better manage the risks they face.

The program is part of the Arkansas Farm Family Risk Management Education Initiative, a joint project between the University of Arkansas' Cooperative Extension Service and Arkansas State University.

James Marshall, an Extension agricultural economist, said the structure of farming began changing in the 1990s with legislation that shifted risks from the federal government to farmers. It placed farmers at greater risk from global competition, changes in the farm supply sector, tax laws changes and new technology.

"It has been a difficult adjustment for many farm families in Arkansas," said Marshall.

Marshall and Scott Stiles are helping producers evaluate their financial positions and the performance of their farm operations and to find ways to improve farm finances.

Marshall is stationed in Little Rock and serves farmers in central and southeast Arkansas, while Stiles is stationed in Jonesboro for northeast Arkansas. Another economist will be hired for southeast Arkansas.

Why do farmers need help?

"They're good at growing crops, but many are not so good at the financial aspects of the operation. Record-keeping is a major concern for many farmers," Marshall said.

"Scott and I try to help them understand some of the concepts so they can make more informed decisions."

Stiles and Marshall provide confidential, one-on-one consultation with farm families, conduct workshops and put out a monthly newsletter for county Extension agents to distribute to their clients.

Their assistance focuses on the areas of preparing financial statements, analyzing financial positions, planning cash flows, keeping records, deciding crop mixes, setting marketing strategies, making purchase-versus-lease decisions, and investing in irrigation equipment and land-leveling.

Marshall said he and Stiles are telling farmers with computers where to find useful software to help them prepare financial statements and keep records.

"A lot of tools are free on the Internet. For instance, a chemical company provides a free software program that allows farmers to keep chemical records on their fields." He said many universities have created useful software that can be downloaded from the Internet.

Marshall said he helped an Ashley County farmer build a customized, easy-to-use spreadsheet to monitor costs for his catfish ponds. He gave a Lonoke County farmer's wife tips to help her do a better job of keeping the farm's books.

Stiles has helped several farmers set up record-keeping programs using popular, commercial software.

"Some of them have gained a better awareness of where their money is going," Stiles said. "It's been a big revelation for some. More importantly, they're supplying their lenders with better information. It gives their lenders more confidence in their business skills."

Marshall and Stiles said farmers need help making several decisions.

"Crop-mix decisions are important to farming. Farmers should compare the revenue from the crop mix they grow to different mixes," Marshall said. "Some farmers grow the same mix every year when they could do better by changing the mix."

Marketing is another important area where farmers need help, Marshall said. "While some farmers do a good job of it, it's unfamiliar territory for many other farmers."

Farmers can contact their county agent for more information. They can reach Marshall at 501-671-2284 or at [email protected] Stiles can be reached at 870-972-2087 or at [email protected]

Historically plagued by Mother Nature and the whims of consumer demand, today's agricultural producers have more opportunities to receive advice on managing their risks and producing a profitable crop.

Through the years, farmers have contended with weather, insects, crop diseases, financial challenges, overseas competition, changes in government regulations and a variety of other obstacles that increase the risk of farming. Yet despite these risks, producers are doing a better job than ever before at supplying the food and fiber for our civilization.

"There is much talk today of a farm crisis, and although agricultural production has generally been plagued with various crises, today's situation is certainly financially distressful for producers," said Barry Barnett, agricultural economist with the Mississippi Agricultural and Forestry Experiment Station.

In the past, Barnett said, the federal government eased situations for producers to help them stay in business. During the low prices of 1998 and 1999, the government subsidized farm incomes through emergency legislation. In 1999, farmers across the country received the highest farm subsidy ever of $22.5 billion.

"There have always been farm crises. The farm crisis of the early 1980s had different causes from today's," Barnett said. "The total number of U.S. harvested acres has remained relatively constant over the past two decades. Within the United States, there have been periodic shifts in acreage across crops. Outside the United States, acreage has increased for some crops."

The last three years have been good production years, and increases in food production have outpaced increases in market demand, leading to increased stockpiles of agricultural products.

With agricultural production up and demand not keeping pace, American producers are struggling to survive these risky times. Risks cannot be eliminated, but they can be managed. The benefits of following a risk management program include more effective strategic planning, better cost control, minimized losses, better decision-making and better use of resources.

"The livelihood of agricultural producers depends on making well-calculated decisions that will help insure the long-term financial viability of a farm business enterprise. Good risk management techniques can help," Barnett said.

Risk management consists of a number of complex and interrelated decisions seeking to identify opportunities as well as avoid problems.

Effective procedures include production strategies like installing irrigation equipment, planting transgenic seeds, diversifying crops, practicing forward-pricing, purchasing insurance to cover losses, rotating crops, taking marginal lands out of production, eliminating unnecessary tillage operations, practicing good pest and diseases resistance management, and planting proven and tested seed varieties.

Keith Coble, MAFES ag economist, said financial management techniques include maintaining capital reserves, renting out sections of land, developing good marketing strategies, investment planning, and evaluating machinery and labor needs.

"Farming is inherently risky. There is usually a trade-off between risk reduction and profit. To set up appropriate risk management strategies, producers need to evaluate new risk tools as they come along," Coble said.

In late winter, the MSU Extension Service sponsored Risk Management 2000, a teleconference to inform producers of risk management techniques. Broadcast simultaneously at six locations around Mississippi, the teleconference included several MSU researchers, including MAFES ag economist John Lee.

"One approach to reducing financial risk is to use some of the 1999 government disaster payments to pay down farm debts carried over from the previous year. Some producers may consider renting their land out for a year or two. This provides income, eliminates the need for borrowing production money and frees farm equipment for contract work," Lee said.

Lee said producers should consider stretching out terms of loans, redoing the loan, or negotiating deferral of the principal payments and making a payment only on the interest.

The current farm crisis has been blamed on a myriad of problems, but the basic problems are low prices for grain, oilseed and cotton caused by global production, and stocks growing faster than consumption. Other factors include three years of good weather worldwide, increased South American competition, weaker exports and trade barriers.

While farmers are suffering from low prices, consumers have access to plentiful supplies of food, with less of their income going for food than at any time in modern history.

The agricultural crisis seems to go unnoticed in a humming national economy. Less than 2 percent of the country's population lives on farms, and agricultural production accounts for only a percent or two of the nation's gross domestic product.

In these challenging times, practicing smart risk management techniques can help producers survive and prosper.

For more information on managing risks, log onto www.agecon.msstate.edu/risk. Risk Management 2000 is located at www.ext.msstate.edu/special/risk2000.

them to deduct travel expenses to and from the farm site as well. This is a very complicated determination and one that should be discussed with a tax consultant in advance of filing a tax return.

The age of U.S. farmers is continuing to increase."As the number of farmers who are over 65 increases, the number under 35 decreases," said Jim Neel, a beef cattle specialist with the Agricultural Extension Service at the University of Tennessee.

"Farmers who are 65 and over make up 24.1 percent of the total, compared to 14.6 percent in 1982," he added. "Those farmers under 35 declined from 22.3 percent in 1982 to 10.8 percent in 2000."

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.