Managing risk critical for farmers of the future, TV personality Adam Henson says

(L-R): David Knight, Jeavon Lolay and Andrew Naylor from Lloyds Bank, and Adam Henson
(L-R): David Knight, Jeavon Lolay and Andrew Naylor from Lloyds Bank, and Adam Henson

Managing risk is going to be one of the most important skills for farmers of the future, TV farming personality Adam Henson has said.

The industry needs to learn to manage an increasingly volatile agricultural environment alongside possible upheaval resulting from the EU Referendum.

This was TV Adam Henson’s message to a group of Cumbrian farmers when he spoke at a lunch at North West Auction’s J36 Rural Auction centre near Milnthorpe.

He said that with uncertainty now the only certainty, managing risk was becoming ever more important.

TV personality Adam Henson says to manage risk because market volatility will continue
TV personality Adam Henson says to manage risk because market volatility will continue

"Mechanisms like hedging and futures might seem complicated but there are a number of simpler ways to manage risk – such as avoiding exposure to high interest rates, fixed rate lending, or capping monthly repayments.

"Reducing risk by taking some of these simple steps might mean you don’t always catch the market at the highest point, but it will ensure you don’t get hit so badly when the markets are unfavourable.

"But the biggest benefit is increasing certainty – knowing what lies ahead, which helps you plan," he said.

Also at the event, Jeavon Lolay, head of economics and market insight at Lloyds Bank, echoed this message, explaining the reasons behind current market volatility and the continuing risks to the outlook.

Lloyds Bank area director David Knight emphasises need to preserve cash
Lloyds Bank area director David Knight emphasises need to preserve cash

'Farming is well-placed to benefit'

"While a weaker currency can be bad news for some businesses, farming is potentially well-placed to benefit – for example through increased exports and a better exchange rate on subsidies paid in Euros," he explained.

"We don’t know how the future regime for farming will look, but we would expect subsidies in their current form to continue for at least a couple more years.

"The current weakness in the pound means every Euro is worth more Sterling in the pocket than before the referendum, which farmers can capitalise on."

Lloyds Bank Agriculture’s Area Director for the North West David Knight, also at the event, outlined some practical ways in which farmers could manage cashflow challenges in the short term.

"It’s important to preserve cash while times are tough," said Mr Knight.

"Commodity prices remain very challenging at the moment – particularly in the dairy sector.

'Good knowledge of costs'

"However, a good knowledge of your costs of production will help you review your options – such as whether to expand or contract, or how to make more of your existing contract by changing your system."

Freeing up cash from capital items where possible would also help maintain that all important cash.

"Do you really need to replace that piece of machinery this year? Could you do without it altogether, or spread the costs by using hire-purchase arrangements?

"Either way, maintaining a healthy level of working capital is really important. Businesses can survive for a time without profit, but not without cash," he stressed.