Risk Management & Crop Production Strategies Flashcards
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Read the first 7 Risk Management & Crop Production Strategies flashcards as text
A farmer enters an Agricultural Risk Coverage – County (ARC-CO) contract. Payments are triggered when:
Answer: County benchmark revenue falls below 86% of the five-year Olympic average benchmark
ARC-CO uses county-level benchmark revenue and pays when actual county revenue falls below 86% of the five-year Olympic average, providing a shallow loss safety net.
Which risk management strategy best addresses institutional risk, such as sudden changes in environmental regulations affecting a farm operation?
Answer: Active participation in farm organizations and staying informed about pending legislation
Institutional risk from regulatory changes is best managed through advocacy, awareness, and early adaptation rather than financial instruments.
In grain marketing, a 'basis' that is stronger than expected at delivery benefits which party in a cash sale scenario?
Answer: The seller, who receives a higher cash price than anticipated
A stronger (less negative or more positive) basis means the local cash price is higher relative to futures, benefiting the grain seller.
A farm manager wants to reduce financial risk by matching debt repayment terms to asset life. For purchasing land, this means using:
Answer: A long-term mortgage with a 20–30 year amortization
Land is a long-lived asset and should be financed with long-term debt whose repayment schedule aligns with the asset's productive life and cash generation capacity.
Which type of crop insurance endorsement allows a producer to insure a specific yield practice, such as irrigated versus non-irrigated acres, separately?
Answer: Optional Units based on practice
Optional units allow producers to insure different practices, types, or fields separately, maintaining distinct APH and loss accounting for each.
Precision soil sampling on a grid basis every 2.5 acres primarily helps reduce which category of crop production risk?
Answer: Input cost and nutrient management risk
Detailed soil sampling reveals nutrient variability, allowing precise fertilizer recommendations that reduce over- or under-application costs and associated yield risk.
A farm operator hedges 60% of expected soybean production with futures contracts and leaves 40% unhedged. The unhedged portion represents:
Answer: A speculative position subject to full price risk
The unhedged portion carries full exposure to market price movements and constitutes a speculative position because no offsetting transaction is in place.