Managing Uncertainty in a Volatile Market Year

Farming has always involved risk. And with risk comes uncertainty. However, the last few years have seen an unprecedented rise in uncertainty due to extreme weather conditions, dizzying input costs, drastic commodity price swings, and crippling labor shortages.

2026 has also brought an unstable geopolitical landscape to the party. But the goal of risk management is not to eliminate the risk; that would involve being able to accurately predict the future. But, as stated by the United States Department of Agriculture (USDA) Risk Management Agency, it is “about understanding [the risks] and making conscious choices to protect the farm business.” The goal is to manage risk well enough that one bad year does not threaten the entire operation. Play the long game.

That can be accomplished in several ways: through having a clear understanding of your cost of production, taking the emotion out of marketing, protecting your cash flow, and diversification. Have a plan — and then write the whole plan down.

Know Your Numbers

While that sounds simple, it can be surprisingly elusive. Some producers can rattle off the current commodity prices within a few cents and yet not know what their true break-even point is. In a stable market, that may not have a lot of effect on the bottom line. But when the market is as volatile as it has been, that can lead to decisions based on hope, habit, or emotion rather than on solid business data. As an old grain marketing proverb reminds us, "Hope is not a marketing plan."

Understanding cost of production means accounting for every expense that goes into producing a marketable crop. That covers a lot of ground. Seed, fertilizer, chemicals, fuel, repairs, labor, land costs, insurance, interest, and equipment depreciation all contribute to the final number. The goal is to determine what it actually costs to produce a bushel, bale, ton, or pound of product before it leaves the farm. Crunching all those numbers could involve a substantial investment in time, but it will pay dividends when it’s time to go to market.

Why is this important? Farm Progress by Informa explains: “Effectively managing financial risk depends on good records, cost-of-production analysis, and financial statements and analysis to make informed decisions and position an operation for financial stability and viability.” Knowing your numbers provides a foundation for nearly every business decision.

As an example, consider two corn growers who receive the same bid from a local elevator. Both growers know their numbers. One has a break-even price of $4.35 per bushel and the other one needs $5.05 to cover costs. Even in the exact same market, the bid may represent a profitable business opportunity for one but a losing proposition for the other.

Having a firm grip on the numbers is extremely valuable information in uncertain times. It may not eliminate risk, but it is one of the best tools available for managing it.

Market By Method, Not By Emotion

Few decisions create more stress than deciding when to sell. Every producer has watched the market rise after making a sale or fall after deciding to wait. Those experiences can make it tempting to hold out for the perfect price.

Unfortunately, the perfect price is usually only discerned in hindsight. The reality is that nobody consistently sells at the high of the year. Markets are constantly influenced by weather, exports, government reports, currency fluctuations, and countless other factors that are impossible to predict with any certainty.

Rather than always trying to hit the highs, successful marketers often focus on consistently capturing profitable opportunities. Many advisors recommend making incremental sales throughout the season rather than pricing an entire crop at one time. This approach spreads risk across multiple opportunities and reduces the likelihood of a single poorly timed decision having a major impact on profitability.

For example, an astute wheat producer’s business model has him selling 25% of his expected production at planting, another 25% during the growing season, and several additional bushels after harvest. That producer may never hit the annual market high.

For some producers, that may sound like heresy. Who would do that? But, here’s the thing: that producer is also unlikely to suffer the consequences of having an entire crop exposed to a sudden market downturn. He may not always hit a home run, but some well-timed base hits over the course of the season will still put him on a winning team.

That brings us to another strategy with a similar concept. Diversify: Put Your Eggs in Different Baskets

This remains one of agriculture’s oldest and most effective risk-management strategies.
When all revenue comes from a single commodity, a poor market year or production setback could have a devastating impact on the entire operation. Diversification helps spread that risk across multiple income sources.

That could mean growing several different crops. Or it could involve combining crop and livestock enterprises. Or perhaps providing custom services, developing value-added products, or maintaining some off-farm income. As Global Challenges newsletter puts it, “By adopting diverse crops, farmers can mitigate soil degradation, reduce pest outbreaks, and stabilize income.”

Diversification won’t eliminate risk, but it can reduce dependence on any one market or enterprise.
The goal isn’t necessarily to maximize returns from every activity. That would be the best of all worlds. Rather, the goal is to create stability. When one business segment struggles, another may help carry the load. Interestingly, many producers have discovered that some of the most valuable income streams during difficult years are ones that seemed to be of little importance when times were good.

Protect Cash Flow

“Insolvency is the greatest result of risk farmers face.” So says Farm Progress by Informa, quoted earlier. Profitable farms can still face financial stress if cash flow becomes tight. Working capital often serves as the first line of defense when markets weaken or unexpected expenses arise. Operations with healthy cash reserves generally have more flexibility to manage setbacks, take advantage of opportunities, and avoid making decisions under pressure.

That doesn’t mean producers should accumulate a lot of cash and then sit on it. But it does point up the importance of liquidity and maintaining enough financial flexibility to navigate uncertainty. So, it is wise to regularly review operating loans, monitor debt levels, and control expenses. Doing so can help strengthen the operation’s position. In volatile markets, cash flow problems often become more dangerous than profitability problems. A temporary downturn can usually be managed. Running out of operating capital can be a much more difficult problem to come back from.

Put It in Writing

This is perhaps the simplest but most overlooked risk-management tool available. Why is it important? Because everything is subject to change: markets, conditions, emotions. But a written plan provides a consistent point of reference when circumstances become uncertain. That plan doesn’t need to be complicated. It might include production goals, marketing targets, cash-flow projections, insurance decisions, and contingency plans.

Often, the process of creating the plan is just as valuable as the plan itself. Why? Because it forces producers to think through potential challenges before they occur. Former President Dwight D. Eisenhower is credited with saying, “Plans are useless, but planning is indispensable.” Agriculture proves that point every year. Conditions rarely unfold exactly as expected, but producers who have thought through potential scenarios are generally better prepared to respond.

In addition, it is important to take out that plan and review it on a regular basis to see if adjustments need to be made. Farm Credit of the Virginias provides this important reminder: “Risk Management is not a one-time task; it is an ongoing process. Regularly review your plan to ensure it remains relevant as your operation evolves.”

Resilience is the Goal

Volatility is likely to remain part of modern agriculture. And with it comes uncertainty. Markets will rise and fall. Weather will remain unpredictable. New challenges will emerge. The most successful farms are not the ones that predict the future best. They are the ones that build resilience into their operations and prepare for uncertainty before it arrives. Risk management is not about avoiding every setback. That will never happen. It’s about making sound decisions that protect profitability, preserve flexibility, and position the operation for long-term success.

A successful producer must keep an optimistic outlook on life and work. Humorist and cowboy philosopher Will Rogers once remarked, “The farmer has to be an optimist, or he wouldn’t still be a farmer.” Optimism remains one of agriculture’s greatest strengths. Risk management is simply a way to help ensure that optimism is supported by sound business decisions. A producer who understands this and is able to act on it — even in uncertain times — has something that is as valuable as any crop he can grow.

“The farmer has to be an optimist or he wouldn’t still be a farmer.” — Will Rogers