It is important to recognize that there are risks in any business endeavor, including agriculture. When you try to minimize the effect that that risk will have on your enterprise you are practicing risk management. Assessing your risk tolerance is an important first step in developing a risk management program.
Risk is handled in five different ways.
Retain - this strategy leaves you with no protection from the downside of a market price. Shift - this strategy is an agreement where someone else takes on part of your risk. Reduce - an example of this strategy is to lock in a commodity price. Avoid - in this strategy you choose not to get involved in any risky practices. You can also use a combination of these strategies to develop your risk tolerance.