The core of the FARM Assistance decision support system is a ten-year financial and economic projection of the farm or ranch assuming a specific strategic plan of action (long-term plan of operation). The initial projection is called the “baseline.” The baseline is intended to give the subscriber a sense of where the business may be headed financially, and to uncover potential strengths and weaknesses in the operation. The baseline also provides a benchmark against which to compare projections of alternative strategic actions.
The process begins with information provided by the subscriber describing the activities and current situation of the farm or ranch being input into the computer program. The program then generates an economic environment which the farm or ranch operates in over the next ten years. The economic environment consists of specific factors such as prices, yields, inflation, interest costs, etc. In no way are we suggesting that we know exactly what the economic conditions will be for the next ten years. However, a great deal of scientific research and expertise are gathered annually by the Food and Agricultural Policy Research Institute (FAPRI) and the Agricultural Food and Policy Center (AFPC) research teams to develop a projection specifically for agriculture over the next ten years.
This single projection is one of the many possible outcomes that could happen over the next ten years. The process of simulating the operation’s strategic plan over the next ten years is actually repeated 100 times in an effort to capture the range of possible outcomes. During each repetition, the operation faces a different set of prices and yields. The result is 100 statistically-based financial outcomes that reflect the risks previously experienced by the farm or ranch and incorporate the forecasts provided by FAPRI and AFPC. In this sense, the FARM Assistance projection is not a single projection, rather is a picture of the range of possible outcomes that could be expected during the subsequent ten years. Using this range, the analysis describes the risk in the financial future of a farm or ranch.