Risk is a very important aspect, especially in your farming business. It is essential to understand some key factors and risk management to consider invest in cattle before you start investing. Many uncertainties are going to ruin you if you learn nothing before you start,
Uncertainties are inherent in global markets, government policies, prices, yields, weather, and many other factors. Those uncertainties can impact farming and cause wide swings, especially in farm income. Risk management is very crucial in reducing various financial effects from uncertainties.
Key Factors and Risk Management to Consider Invest in Cattle
Five different types of risk are ready to ruin your farming business. Those risks are personal or human risk, institutional risk, financial risk, market or price risk, and production risk. Learn about every single risk and how to manage each of them to be a better investor.
1. Personal or Human Risk
This risk refers to factors like problems with personal relationships or human health that will affect your farm business. Divorce, death, illness, and accidents are some personal crises that will definitely threaten your farm business. Learn about those factors when you want to invest in cattle.
2. Institutional Risk
This is caused by uncertainties around government actions. Chemical use regulations, animal waste disposal rules, tax laws, and also income support payments or the price level are some examples of government decisions that will impact your farm business.
3. Financial Risk
This risk will appear when a farm business decides to borrow money and get an obligation to repay the debt. Restricted credit availability, being called by lenders, and rising interest are some other aspects of this financial risk. Investors who want to invest in cattle must anticipate this risk.
4. Market or Price Risk
This one refers to the uncertainty about the pricing that will be received by producers for commodities. It can also be the prices producers must pay for inputs. The price risk nature varies significantly from one commodity to another commodity.
5. Production Risk
This one comes from the uncertain process of the natural growth of livestock and crops. Factors like pests, disease, and weather can affect both the quality and quantity of commodities that are being produced.