Risk isn’t simple

We all want an easy number or label, but it's complicated

Most people want to know what foods are “good” and “bad.”

My wife sometimes asks me about whether or not certain foods are “good,” knowing I spend a lot of time listening to food industry and dietary health presentations at conferences, and I generally respond with the annoying answer of “It’s complicated.”

Most foods aren’t good or bad. They are all probably bad in some way, from a certain dietary perspective (calories, fat type, salt, carbohydrate content, sugar, over-processing, etc), but very few are outright “bad.” And few also don’t have elements that any dietician would call “good.” It’s a matter of what you’re looking at and which of a food’s many elements you’re judging the food by.

This truth certainly applies to the kinds of risk farmers face when they look at the amount of risk their cropping plan brings with it.

How do you assess that? Do you look at reasonable expectations for your yields, costs and forward market prices and compare each crop against that? Do you look at what would happen if there was a production or market disaster? Do you forecast conservatively? Do you consider the upside potential of each crop, both for yield and price?

There are so many ways of looking at farm risk. This week in my column I looked at the great job the folks in Manitoba Agriculture’s Farm Management team do in breaking apart various forms or risk, and share my own observations about how their work allows me to look at farm production risk from a variety of angles, including the reality that corn and oats can appear radically different in terms of risk depending upon what measure you choose to employ. You can read that column here.

In recent years the Farm Management folks have been adding-in land price/rental analysis in their calculations, and that adds a whole new layer of at-risk perspective. (You can find some of their work online in this link.) They have also added seeding date analysis, showing how some crops that appear most-profitable if seeded in the ideal window drop precipitously if seeding is delayed, while others are better and hanging on to yield potential. They have also looked at the profitability impacts of various rotations.

“It’s important for producers to understand just how sensitive our margins are,” Darren Bond, one of the analysts, told me when I called him to chat about this year’s package of crop risk analysis his outfit is busily trying to communicate to farmers before seeding season strikes.

What I find most useful about their work isn’t the usual headline item we and other farm media generally run with, which is the numerical ranking of farmers’ crop choices. Everybody wants to know what’s the (likely) most moneymaking crop this year, and which is the stinker. That top-to-bottom element is certainly useful, and I salute the courage of the analysts for being willing to give an honest ranking of the choices, knowing much will change by harvest and all sorts of people will challenge their assumptions in the meantime.

To me, the most important element is their modelling of different risks, offering differing and sometimes contradictory perspectives on the same crops. Are corn and oats similar in profit outlook and financial risk this year? The answers I looked at in my column are basically “Yes they are,” “Yes they are,” and “Absolutely not.” It all depends what window you look through to get your perspective on the crops.

Farming is a crazy business, with growers juggling so many balls simultaneously. Producers are familiar with this reality and take it for granted. Indeed, it’s probably one of the attractions of the calling.

“It’s what makes farming so fun,” said Bond.

“There are a lot of moving parts and factors at play.”

But there’s always an attraction for people to try to make things simple, as with the “good” and “bad” foods situation. To the credit of Manitoba Ag Farm Management folks, they don’t let you easily get away with that.

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