AFM Risk Management & Crop Production Strategies 3

Question 1

Which financial metric is most useful for evaluating a farm's ability to service debt from current-year operating income?

Accepted Answer

Debt service coverage ratio

Answer

The debt service coverage ratio compares net farm income plus depreciation to total principal and interest payments, indicating repayment capacity.

Question 2

A wheat producer in the Southern Plains is considering drought-tolerant variety selection as a risk management strategy. The primary advantage is:

Accepted Answer

Reducing yield loss probability during moisture stress periods

Answer

Drought-tolerant varieties maintain more stable yields under water-limited conditions, directly reducing production risk in drought-prone areas.

Question 3

Under Revenue Protection (RP) crop insurance, which scenario triggers an indemnity payment?

Accepted Answer

When actual revenue falls below the revenue guarantee due to yield loss, price decline, or both

Answer

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.

Question 4

A farm's liquidity risk is best addressed through which of the following actions?

Accepted Answer

Maintaining a cash reserve or operating line of credit to meet short-term obligations

Answer

Liquidity risk involves the inability to meet short-term cash needs; a reserve or credit line provides immediate access to funds without disrupting operations.

Question 5

Cover cropping between cash crop seasons primarily reduces risk by:

Accepted Answer

Improving soil health, reducing erosion, and potentially suppressing weeds

Answer

Cover crops protect soil from erosion, add organic matter, and can suppress weed pressure, reducing long-term input costs and soil degradation risk.

(AFM) Accredited Farm Manager Certification Practice Test

(AFM) Accredited Farm Manager Certification Practice Test

AFM Risk Management & Crop Production Strategies 3