Risk Management & Crop Production Strategies Flashcards
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Read the first 7 Risk Management & Crop Production Strategies flashcards as text
A livestock-grain farm uses on-farm grain storage after harvest. The primary risk management advantage of this strategy is:
Answer: Allowing grain to be sold when prices are more favorable rather than at harvest lows
On-farm storage provides flexibility to delay sales beyond harvest, when prices often recover from seasonal lows caused by harvest-time supply pressure.
Which characteristic of a multi-peril crop insurance (MPCI) policy makes it different from a named-peril policy?
Answer: It covers yield losses from virtually all weather and disease causes rather than specific listed perils
MPCI policies like APH-based products cover loss from any insurable cause of loss, while named-peril policies limit coverage to specific listed events.
A crop producer's Actual Production History (APH) yield is calculated using up to how many consecutive crop years of yield data?
Answer: 10 years
APH is calculated from a minimum of 4 and maximum of 10 consecutive years of actual or assigned yields to establish the producer's approved yield.
Enterprise risk management (ERM) on a farm differs from single-risk hedging because ERM:
Answer: Considers interrelated risks across production, price, financial, legal, and human dimensions holistically
ERM takes a comprehensive view of all risk categories and their interactions, unlike single-tool approaches that address only one risk dimension.
Which soil health practice most directly reduces the risk of topsoil loss during heavy rainfall events in row crop production?
Answer: Adopting no-till or reduced tillage systems
No-till and reduced tillage leave crop residue on the soil surface, dramatically reducing water erosion by slowing runoff and protecting soil aggregates.
When a farm operator uses a put option to manage price risk, the maximum loss the operator can incur is:
Answer: The premium paid to purchase the option
A long put option limits downside risk to the premium paid, since the buyer is not obligated to exercise if the market moves favorably.
Succession planning is classified under which category of farm risk?
Answer: Human risk
Human risk encompasses events related to people, including death, disability, divorce, and succession or transition of the farm business.