Cash flow risk ratio: An aid to marketing decisions

In the past, the fully regulated marketing environment allowed producers to neglect or ignorethe marketing side of their business. Now, with an open marketing system and increasedvolatility in the commodity markets, producers will have the right and the responsibility todetermine their own financial security. One of the most difficult questions for producers toanswer, is how much of his/her crop must be pre-harvest marketed. Knowing his/herproduction costs (both variable and fixed) and range of acceptable production, price, andfinancial risks are the key to determining his/her price objective. Producers can determinetheir degree of marketing flexibility by using the cash flow risk ratio. This ratio predicts whatpercentage of the projected crop must be marketed at the expected season average price tomeet cash obligations. In this uncertain and risky future, failing to plan may be the same asplanning to fail.