Risk Management Options for Montana Farms

Abstract

Agricultural production is a financially risky business. In Montana, production losses from natural hazards do occur (for example, drought, fire, hail and insect damage). Farm managers also face substantial price risks, both in resource markets where they purchase their inputs and in commodity markets where they sell their crops. Energy prices can vary substantially from one month to the next, as can nitrogen and other fertilizer prices. Crop prices can be volatile. Moreover, the link between farm-level production losses and commodity prices is weak. At the market level, when production is relatively low prices tend to be relatively high, but an individual agricultural producer may experience low levels of production because of locally adverse production conditions when commodity prices are also low.