AFM Risk Management & Crop Production Strategies 5

Question 1

A farmer enters an Agricultural Risk Coverage – County (ARC-CO) contract. Payments are triggered when:

Accepted Answer

County benchmark revenue falls below 86% of the five-year Olympic average benchmark

Answer

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.

Question 2

Which risk management strategy best addresses institutional risk, such as sudden changes in environmental regulations affecting a farm operation?

Accepted Answer

Active participation in farm organizations and staying informed about pending legislation

Answer

Institutional risk from regulatory changes is best managed through advocacy, awareness, and early adaptation rather than financial instruments.

Question 3

In grain marketing, a 'basis' that is stronger than expected at delivery benefits which party in a cash sale scenario?

Accepted Answer

The seller, who receives a higher cash price than anticipated

Answer

A stronger (less negative or more positive) basis means the local cash price is higher relative to futures, benefiting the grain seller.

Question 4

A farm manager wants to reduce financial risk by matching debt repayment terms to asset life. For purchasing land, this means using:

Accepted Answer

A long-term mortgage with a 20–30 year amortization

Answer

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.

Question 5

Which type of crop insurance endorsement allows a producer to insure a specific yield practice, such as irrigated versus non-irrigated acres, separately?

Accepted Answer

Optional Units based on practice

Answer

Optional units allow producers to insure different practices, types, or fields separately, maintaining distinct APH and loss accounting for each.

(AFM) Accredited Farm Manager Certification Practice Test

(AFM) Accredited Farm Manager Certification Practice Test

AFM Risk Management & Crop Production Strategies 5