Risk Management & Crop Production Strategies Flashcards
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Read the first 7 Risk Management & Crop Production Strategies flashcards as text
Which financial metric is most useful for evaluating a farm's ability to service debt from current-year operating income?
Answer: Debt service coverage ratio
The debt service coverage ratio compares net farm income plus depreciation to total principal and interest payments, indicating repayment capacity.
A wheat producer in the Southern Plains is considering drought-tolerant variety selection as a risk management strategy. The primary advantage is:
Answer: Reducing yield loss probability during moisture stress periods
Drought-tolerant varieties maintain more stable yields under water-limited conditions, directly reducing production risk in drought-prone areas.
Under Revenue Protection (RP) crop insurance, which scenario triggers an indemnity payment?
Answer: When actual revenue falls below the revenue guarantee due to yield loss, price decline, or both
RP guarantees a revenue floor using the higher of projected or harvest price, triggering indemnity whenever actual revenue falls short regardless of which factor caused it.
A farm's liquidity risk is best addressed through which of the following actions?
Answer: Maintaining a cash reserve or operating line of credit to meet short-term obligations
Liquidity risk involves the inability to meet short-term cash needs; a reserve or credit line provides immediate access to funds without disrupting operations.
Cover cropping between cash crop seasons primarily reduces risk by:
Answer: Improving soil health, reducing erosion, and potentially suppressing weeds
Cover crops protect soil from erosion, add organic matter, and can suppress weed pressure, reducing long-term input costs and soil degradation risk.
Which USDA program allows farmers to receive payments when market prices or revenues fall below a defined reference level, acting as a government-backed price floor?
Answer: Price Loss Coverage (PLC)
PLC makes payments when the national average market price falls below the effective reference price, providing a commodity-specific price floor.
A farm manager uses variable-rate technology (VRT) to apply inputs based on soil sampling zones. The risk management benefit of VRT is primarily:
Answer: Reducing input waste and cost while maintaining or improving yields
VRT matches input rates to actual soil needs by zone, reducing over-application costs and environmental risk while protecting agronomic performance.