Step 6: Determining the Likelihood of Outcomes

In Chapter 2 we outlined the basic concept of a risk profile. There are many variables to consider in a risk profile such as weather, inputs, prices, and yields. Identifying the variables that can affect your operation and determining the likelihood that these events may occur can be daunting. As in other chapters, Chapter 10 is divided into three parts to provide hands-on experience in developing your own risk profile. In the first part, EWS Farms develops a risk profile for an operational decision. In this case, EWS Farms is looking at price and basis risk for marketing its corn. In the second part, the statistical terms and concepts behind risk profile development are defined and explained. The final third of the chapter provides the Risk Navigator tools, which can be applied to develop your own risk profile.