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HomeFinance and AccountingBudgeting and Cash FlowModeled case studies the new way to teach farmers about financial risk...

Modeled case studies the new way to teach farmers about financial risk management

Providing financial and risk management tips to business people and farmers is always a tricky subject. The reason why is because the best methods rely on comparing distinctive cost plans, family living costs, present capital and debt amounts to the farmer’s risk tolerance, yield and financial risk.

GRS consultants and management educational seminars often make use of decision aids to help businesses and farmers make better choices than in the past. Additionally, farmers will be able to tell where they fall in a range of possible cost plans and debt stages to pick the most efficient strategy.

On the other hand, farmers too are at times hesitant to disclose in a group setting information about their financial status, such as pending rental fees. This issue continues to hamper the delivery of financial lessons during the seminars and programs. Nonetheless, there has been a breakthrough in avoiding this hurdle, and this is through the use of case studies.

How Modeled Farm Case Studies Works

To come up with the case studies, researchers collected data from around 227 grain farms. The case studies represented both a high-cost/high-debt (HCHD) grain operation and a low-cost/low-debt (LCLD) grain operation.

Modeled farm case studies simulate each farm business’s cash flow. The cash flow includes variables such as land rates, production costs, the rate of interest on average, long-term debts and family expenses among other items.

According to the case simulation, should the farm have a cash deficit, then the farmer’s first piece of business will be to raise the operating vote to take care of the debt. After that, the farmer will then use the money to pay off any deficit present after hitting the debt limit, and profits from the sale of farm produce to clear any amount remaining.

The simulation process comes to a stop should the farm’s operating working capital hit zero. Besides, simulated farm case studies are tailored to have risk management and financial lessons implanted in them.

Advantages of Using Simulated Case Studies in Management Educational Seminars for Farmers

Modeled case studies provide farmers with an opportunity to disclose their financial status without being scared. Other than that, farmers can talk about their risk management plans and policies without revealing that information to business rivals.

Ideally, the study focuses on handling cost, debt, working capital and using the best and most efficient risk management tools for a given crop year. Additionally, a proper risk management structure depends on whether the farmer is willing to take a risk.

The simulated risk management tools show the relationship between a farm’s financial state and the risk management tools available. Most educational programs do not take into account the potential effects of combining risk strategies to protect revenue. In addition to that, the consequences of risk management are not addressed during farmers’ training.

Suggestions for the Future

One primary lesson that stuck out during the development and testing of the case studies was that banks and other financial institutions who lend money to farmers need to be present during the seminars. Additionally, they need to be involved when coming up with simulated case studies.

With all that said and done, up and coming farmers need to be given more support than the already established farmers, who may have more experience in farm profitability.

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