Financial risk covers those risks that threaten the financial health of the farm business and has three basic components: 1) the cost and availability of debt capital; 2) the ability to meet cash flow needs in a timely manner; and, 3) the ability to maintain and grow equity. Cash flows are especially important because of the variety of ongoing farm obligations, such as cash input costs, cash lease payments, tax payments, debt repayment, and family living expenses. 

(After National Crop Insurance Services’ Crop Insurance and Risk Management Primer, Risk Overview, page 35.)

Today’s Christmas tree operations commonly have diverse and/or elaborate financial structures due to 1) size differences across operations, 2) differences in the amount of enterprise integration across operations, and 3) the industry’s multi-year production cycle.  As operators devise new and creative ways to access and utilize capital, they expose themselves to greater financial risks.  Managing the financial risks associated with Christmas tree production can, at times, be a daunting task without the right tools and skills.  Fortunately, today’s producers have at their disposal more and more tools to help them manage their financial risks.  These resources can help producers manage and reduce their exposure to risks associated with liquidity, solvency, repayment capacity, efficiency, and profitability.

 

Two articles are presented on the topic of Marketing Risk:

1. From the National Crop Insurance Services’ Crop Insurance and Risk Management Primer, we provide an article by Dr. Laurence M. Crane entitled Financial Risk.

2. From Risk and Resilience in Agriculture, we provide an article by Rod Sharp entitled Financial Management and Analysis.

These articles were selected for their relevance, ease of understanding, and completeness; however, they do not provide an exhaustive discussion of Christmas tree financial risk.  Readers desiring additional information about Christmas tree financial risk are encouraged to explore the reference links provided below.

 

 

Additional References

  
Library Sources

• National Ag Risk Education Library: http://www.agrisk.umn.edu/;

• Northeast Center for Risk Management Education: http://www.necrme.org/

Articles

• Understanding Financial Risk: http://www.ces.ncsu.edu/sampson/pubs/farm_man/UndstandFinRisk.html;

• Dealing with Financial Risk Management on the Farm: http://www.uvm.edu/~uvmext/business/? Page=finriskonfarm.html;

• Fundamentals of Investment Analysis:  http://www.colostate.edu/Depts/CoopExt/NWR/ABM/abmfnd.pdf;

• Farm Financial Statements: http://www.extension.iastate.edu/Publications/FM1824.pdf

• Financial Guideline Measures: http://www.finbin.umn.edu/webhelp/finbin/financial_guideline_measures.htmguideline_measures.htm;

• A PRIMER for Selecting New Enterprises for Your Farm: http://www.uky.edu/Ag/AgEcon/pubs/ext_aec/ext2000-13.pdf;

• Loans for Beginning Farmers and Ranchers:  http://www.fsa.usda.gov/pas/publications/facts/html/begloan04.htm;

• Tree Crops for Marginal Farmland: Christmas Trees With a Financial Analysis:
  http://www.ext.vt.edu/pubs/forestry/446-605/446-605.html#L4;

 

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