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Farm Business Plan- Choosing Your Crops

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Farm Business Plan- Choosing Your Crops Powered By Docstoc
					?Choosing your crops may simply be based on the experience of the management
team, which is a good way to go. With a team that has wide experience, however, you
may want to consider producing many different crops in the attempt to maximize your
revenue and profitability at all times.

Multiple Crops as a Hedge

With food prices as volatile as they are, an individual farm is generally at the mercy of
the market as to whether they will make a profit in any given year for their crops.
Planting or producing multiple, different crops can allow you to create a portfolio of
sorts, hedging against the possibility of price decreases for any one of your products.
If prices drop in one and you will not be able to produce that crop profitably, you can
reasonable transfer some of your labor capacity to increase production on another.

Specialized Assets

However, switching from crop to crop will never work just like rebalancing an
investment portfolio. For one thing, the cost of switching the use of your land may be
prohibitive if it will require extensive work. Also, retraining staff may be necessary to
prepare them to work on an unfamiliar crop, creating another cost. Finally, the
equipment and tools you own may be only useful for specific crops, and selling them
off may return only a small percentage of their original value once the cost of selling
is included. These assets (land, human resources, and equipment) can be too
specialized to be re-purposed in this way without forethought.

If you plan to use a multiple crop system as a hedging mechanism as described here,
think through how you can avoid the pitfalls of specialized assets before you launch.
Perhaps you can rent or lease rather than buy your equipment to reduce your
investment in it, and hire workers who are trained for multiple crops or are quick
learners to ease transitions. You will also need a savvy sense of the commodities
markets and an ear to the ground on coming trends to know when it is time to shift
capacity or to abandon a crop altogether.

Are you looking for more tips on how to open a farm or advice on developing your
farm business plan? Call 877-BIZ-PLAN to learn how Growthink can help you build
your farm business.

				
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posted:4/7/2011
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