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 Farm risks in north Florida: Importance,...


PETE FLAG IFAS PALMM



Florida food and resource economics
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Permanent Link: http://ufdc.ufl.edu/UF00056203/00002
 Material Information
Title: Florida food and resource economics
Physical Description: v. : ; 28 cm.
Language: English
Creator: Florida Cooperative Extension Service
Publisher: Florida Cooperative Extension Service, Institute of Food and Agricultural Sciences.
Place of Publication: Gainesville Fla
Creation Date: September 1984
Frequency: bimonthly
regular
 Subjects
Subjects / Keywords: Agriculture -- Statistics -- Florida   ( nal )
Agriculture -- Periodicals -- Florida   ( nal )
Agricultural extension work -- Periodicals -- Florida   ( nal )
Agricultural extension work -- Periodicals -- Florida   ( lcsh )
Agriculture -- Periodicals -- Florida   ( lcsh )
Agriculture -- Statistics -- Periodicals -- Florida   ( lcsh )
Genre: government publication (state, provincial, terriorial, dependent)   ( marcgt )
periodical   ( marcgt )
serial   ( sobekcm )
 Notes
Dates or Sequential Designation: no. 1- Nov./Dec. 1974-
Funding: Electronic resources created as part of a prototype UF Institutional Repository and Faculty Papers project by the University of Florida.
 Record Information
Source Institution: University of Florida
Holding Location: University of Florida
Rights Management: All rights reserved by the source institution and holding location.
Resource Identifier: aleph - 000301142
oclc - 01525473
notis - ABS7625
System ID: UF00056203:00002

Table of Contents
    Copyright
        Copyright
    Farm risks in north Florida: Importance, causes, and farmers' responses, by William G. Boggess and Kwabana A. Anaman
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Full Text





HISTORIC NOTE


The publications in this collection do
not reflect current scientific knowledge
or recommendations. These texts
represent the historic publishing
record of the Institute for Food and
Agricultural Sciences and should be
used only to trace the historic work of
the Institute and its staff. Current IFAS
research may be found on the
Electronic Data Information Source
(EDIS)

site maintained by the Florida
Cooperative Extension Service.






Copyright 2005, Board of Trustees, University
of Florida





6 3 oo
!-+ O ,


INSTITUTE OF FOOD AND
AGRICULTURAL SCIENCES
UNIVERSITY OF FLORIDA


. FLORIDA FOOD AND RESOURCE ECONOMICS


September-October 1984
FARM RISKS IN NORTH FLORIDA: IMPORTANCE,
CAUSES, AND FARMERS' RESPONSES*
William G. Boggess and Kwabana A. Anaman


Farm risks faced by mixed crop livestock
farmers in North Florida result to a large
degree from the resource and climatic
conditions of the area. The growing season is
long, but the winters are too cold for citrus
or winter vegetables. The summer months are
warm, wet, and humid providing an excellent
environment for insects, weeds, and
diseases. Despite the fact that the area
receives nearly 60 inches of rain yearly,
drought is a frequent problem on the extremely
sandy soils. Compounding these physical and
climatic problems is the region's distance
from and lack of access to major crop and
livestock markets. The region realistically
is part of a "fringe" agricultural area
between the major Corn Belt production area to
the north and the high-valued citrus and
vegetable production area to the south.
Roughly 80 percent of the farms are mixed
crop and livestock. Major crops include corn,
soybeans, peanuts, small grains and forages.
Peanuts are king if the farmer has an
allotment. Thanks to the development of new
southern varieties, wheat is rapidly become a
major crop. The long growing season allows
full-season wheat to be double-cropped with
full-season soybeans. The wheat does well in
sandy soils and provides winter grazing for
the numerous cow-calf herds. Approximately
two-thirds of the farms have cow-calf herds
and nearly half have small hog operations.
The vast majority of the farms are sole
proprietorships or family partnerships. Off-
farm income plays an important role, with over
half of the farms indicating that either the
operator or spouse worked off-farm.


In the fall of 1983, twenty-five farmers
in Jackson County, Florida were randomly
selected. Personal interviews were conducted
with each farmer. Initially the farmers were
asked to define risk and then to rank various
sources of risk and possible management
responses to risk based on the relative
importance of each to their operation. The
following is a summary of their assessment of
the most important sources of risk they face
and their management responses to these risks.
DEFINITIONS OF RISK
Risk is generally used to indicate that
the action a decision-maker selects has
alternative outcomes. The particular outcome
that will occur is unknown, but some
assessment of the likelihood or probability of
each outcome is available. One of the primary
objectives of the survey was to determine how
farmers define risk.
"Risk is a loaded gun" is how one rather
articulate farmer defined risk. This
definition captures the essence of the
majority of responses. Nearly all of the
farmers focused on the potential of negative
outcomes. "Always figure on half a crop and
don't spend any more than that, "Losing
assets you've already accumulated" or "How
much you stand to lose" are other responses.
Many farmers also expressed the probability
aspect in their definitions. "Chance taking -
putting it all on the line without knowing the
outcome" or "Plans are based orn facts, but
outcomes are uncertain." Finally, a couple of
farmers expressed the potential for gain
aspect, "Risk is the gateway to success," and
"The chances of making and losing money."


*Appreciation is extended to Leonard Cobb, Jackson County Extension Director, Tim Hewitt, Area
Economist and John Holt, Professor of Food and Resource Economics for their support and assistance
with the survey.

William G. Boggess is Associate Professor and Kwabena A. Anaman is a Graduate Assistant,
Department of Food and Resource Economics, University of Florida.


FLORIDA
COOPERATIVE
EXTENSION SERVICE


No. 60






SOURCES OF RISK
Over half of farmers' definitions of risk
explicitly mentioned weather or pests. Not
surprisingly then, production risks,
specifically rainfall variability and pests
(insects, weeds, and diseases) were identified
as the major sources of risk (Table 1). With
respect to rainfall variability, praying was
the most common management response, with
irrigation a close second. Other common
management practices used to combat rainfall
variabililty includes minimum tillage,
subsoiling, crop selection (wheat and grain
sorghum), and maintaining feed reserves,
primarily hay. Pests are major problems due
to the warm, humid climate. Nematode control
is a particular problem since the state of
Florida recently banned the use of Temik and
EDB. Still, chemical control far and away
dominated the list of management responses to
pests. Chemicals are used to control weeds,
insects, diseases and nematodes. Rotating
grass crops between crops of soybeans or
peanuts to control nematodes was the second
most common practice. Other common practices
include: using resistant varieties, scouting
for insects and diseases, planting corn early
to beat the insects and spraying and worming
livestock routinely.
Market related risks were identified as
the second most important source of risk with
variability in commodity prices leading the
way (Table 1). Variability in the costs of
operating inputs and variability in the costs
of capital equipment were also frequently
mentioned. Forward contracting was the most
common management responses to variability in
commodity prices. Soybeans was the most
common commodity contracted. Other less
common practices used to off-set commodity
price variability were drying and storage and
shopping around for the best price. Farmers
for the most part felt that there was little
they could do to combat variability in the
costs of operating inputs or capital
equipment. Most indicated that they shopped
around and attempted to take advantage of cash
or quantity discounts on operating inputs.
However, with the average farm size being 240
acres, bulk discounts are uncommon. In the
case of capital equipment, most farmers
indicated that they put off replacing
equipment and concentrated on maintenance of
existing machinery.
Given the importance of peanuts as the
dominant cash crop in the area for farmers
with an allotment, it isn't surprising that
government commodity programs were the third


highest ranked source of risk. Farmers
frequently mentioned uncertainty over the
future of the peanut program as a major risk
factor. The future of PIK or similar programs
was another common concern. Variability in
state and federal laws and regulations was
also identified as a major source of risk.
Normally this would be a surprising result
were it not for the state's banning of Temik
and EDB shortly before the survey was
conducted. These chemicals were considered to
be critical in the control of nematodes in
peanuts and soybeans.
The fourth source of risk commonly
mentioned was the cost of credit. This was
the only credit variable consistently ranked
as an important source of risk. The majority
of farmers had responded to variability in the
cost of credit by minimizing their use of
debt, particularly operating capital. Over
half of the farmers surveyed had not borrowed
any operating capital in the past year. Other
practices included shopping around and
delaying major expenditures.
Variability in freezes, leasing, new
technology, other weather phenomena (wind and
hail) and hired labor were ranked as the five
least important sources of risk. As a fringe
production area, land is plentiful in North
Florida and leasing is not a problem. Rather,
the problem is making money on the leased
land! Hired labor is generally not a problem
on the small, diversified farms. However,
there were several specialized livestock
operations (dairy and hog) which indicated
that variability in labor availability and
quality was a problem.
MANAGEMENT RESPONSES TO RISK
In addition to ranking the importance of
various sources of risk and indicating how
they attempted to manage those risks, farmers
were asked to rank the importance of a list of
management responses. Not surprisingly, there
is a lot of overlap between their volunteered
responses and their subsequent ranking of the
listed responses. The highest ranked and most
commonly used management responses were
enterprise diversification, production
practice diversification, and maintaining feed
reserves. With the exception of irrigation
(which was inadvertently left off the
questionnaire) these match the farmers'
responses to the highest ranked source of risk
(rainfall variability and pests). All-risk
crop insurance was rarely used.
The second most highly ranked group of
management responses dealt with managing price







risks. Using market information was the
highest rated response in this category,
followed by pacing of investments and spread-
ing sales. Surprisingly, forward contracting
was not rated as very important even though a
majority of farmers had used forward con-
tracts. The farmers unanimously agreed that
hedging in the futures market was not an
important management response giving it the
second lowest rating after hail insurance.
Only eight percent of the farmers surveyed had
ever used the futures market. The low rating
of hedging is probably a result of lack of
familiarity with hedging, the small average
farm sizes, and the distance and lack of
access to the major grain markets.
A third group of highly ranked management
responses to risk included maintaining eligi-
bility for participation in government commod-
ity programs, maintaining flexibility in farm
operation, and off-farm activities by the
operator's spouse. These responses are consis-
tent with earlier responses emphasizing the
importance of the peanut program, the diversi-
fied nature of the farms and the importance of
off-farm income.
INFORMATION NEEDS FOR DEALING WITH RISK
Farmers were also asked to respond to a
series of questions dealing with information
and risk. The first question asked was, 'What
are the key farm decisions you must make?"
The most frequent was, "What should I plant
and how many acres?" For most farmers in the
area their peanut acreage is fixed by their
allotment. After peanuts however, there are
few, if any, clear choices. Weather, pests
and price uncertainty all combine to make this
a very difficult decision.
The second most common response was,
"When to plant?" Weather and pest uncertainty
are the major risk factors that complicate
this decision. The long growing season and
alternative varieties allow a number of crops
to be planted over a relatively wide range of
dates. The only other responses mentioned by
more than three farmers were, "When to sell?"
and "How much money to borrow?"
Farmers were then asked, "What types of
information are most useful in making these
(key) decisions?" The dominant response was,
"Demand and price outlook." It was clear from
the farmers' response that this outlook infor-
mation was critical in making decisions on
what and how much to plant as well as deciding
on when to sell. Extension production infor-
mation was the second most common type of
information used. This type of information


was most useful in dealing with the question
of "When to plant?" as it related to control-
ling pests. Only four of the responses to
this question mentioned records or cost of
production. It was pretty clear that the
majority of farmers viewed records as an
income tax requirement, but not as a manage-
ment tool. This would appear to be an oppor-
tunity for extension education programs,
perhaps harnessing the power of microcomputers
to make record keeping more palatable.
The third question in this series was,
"What types of information not currently
available would be helpful to you in making
these (key) decisions?" The overwhelming
response was market price and outlook informa-
tion of any kind. No other response drew more
than two comments.
The fourth question in the series was
designed to determine if farmers practiced
"risk balancing." The question asked read,
"If you take an action which increases
risk/uncertainty in one aspect of your opera-
tion, do you try to offset or balance this
with other actions in another part of the
business?" For example, if a farmer decided
to grow watermelons (a relatively risky crop)
this additional risk by might be offset irri-
gating and forward contracting his corn and
soybeans. This question was probably the most
misunderstood question in the survey. How-
ever, it was quite clear from the responses
that few, if any, of the farmers had thought
about or deliberately practiced risk balanc-
ing. Only two farmers responded that they
did, although they hadn't thought about it in
those terms. Both farmers mentioned the
textbook idea of diversification, or a
balanced portfolio.
The final question asked was, "Have your
responses to risk/variability resulted from or
been influenced by other people or institu-
tions (e.g. lenders, etc.) with whom you
deal? If so, how?" The county extension
agent was the most frequently mentioned per-
son. This response illustrates the impact
that a good agent can have in an area. Neigh-
bors and parents finished second and third,
respectively in the list of most influential
people.
SUMMARY
The mixed crop and livestock farmers in
North Florida responding to this questionnaire
indicated that rainfall variability and pests
(weeds, insects, nematodes, and diseases) are
the most important sources of risk they face.
The most important management responses used








to combat these risks were irrigation, che-
micals, crop rotation, maintaining feed
reserves, and production practices diver-
sification (planting dates, tillage, varie-
ties, etc.). Commodity price variability was
the third most important source of risk.
Producers indicated that they spread sales and
used forward contracts to offset these risks.
Considerable concern was expressed over the
future of the peanut program and over the
State's banning of Temik and EDB. One other
major concern was the cost of credit. The
farmers indicated that in response to high
interest rates and high capital equipment
prices that they had put off investments and
many had attempted to minimize borrowing.


There would appear to be a need for more
research on marketing alternatives (particu-
larly the futures market), all-risk crop
insurance, optimal crop mixes, irrigation, and
integrated pest management. The respondents
to the survey indicated that they wanted more
market price and outlook information, and
their responses suggested demand for use of
records as a management tool.

If "risk is a loaded gun",then perhaps
through appropriate research and extension
efforts that gun can be handled so that
trophies are bagged and no one gets killed.


Table 1. Mean Importance Rankings and Standard Deviations of Sources of Risk and Variability in Crop Production
..................................... .......................................................
Source of Risk Mean Ranking Standard
Number Variability of Importancea Deviation

1 Rainfall variability 4.70 0.59
2 Diseases and pests 4.50 0.75
3 Commodity prices 4.22 1.01
4 Inflation 3.60 1.64
5 Government commodity programs 3.53 1.39
6 Cost of operating inputs 3.50 1.17
7 Personal safety and health 3.35 1.42
8 World economic situation 3.16 1.36
9 Cost of capital equipment 3.15 1.41
10 Cost of credit 3.04 1.72
11 Federal and State government laws 2.96 1.69
12 Family plans 2.51 1.59
13 Theft of farm equipment, etc. 2.33 1.59
14 Hired labor 2.24 1.79
15 Changes in technology 2.22 1.59
16 Availability of loan funds 2.06 1.55
17 Use of leverage 2.00 1.55
18 Other climatic factors (wind, etc.) 2.00 1.83
19 Leasing 1.67 1.83
20 Freezes 0.91 1.09

aRankings are based on a scale of 0 for not important to 5 for very important.

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