by Rebecca White
During a recent meeting this question was raised: “When our dairy producers come to us and ask what they should do about the feed costs and milk prices, what are we suppose to tell them? This seems impossible”.
My response: tell them to stop being victims to the market. Maybe my harsh answer came out because it was the end of the day or maybe I have been to countless meetings discussing cost of production and solutions to decrease farms’ breakeven milk price and keep getting asked the same question. At point are we putting to much blame on external factors?
I don’t question that we need milk price reform but until that happens, we must work with the system that is in place.
Some dairies today, and even through 2009, have been doing well. What makes them different than the dairies who “can’t seem to catch a break”? That is a pretty complex issue but part of it comes down to the mind set of the dairy operator: they don’t let themselves be victims of the markets.
3 keys to controlling your destiny:
1) Know you cost of production and breakeven margin, IOFC, and/ or Class III milk price at all times
Knowing and understanding you cost of production and everything that goes into will allow you to see where changes need to be made to decrease your costs or increase revenue. If your breakeven is too high, figure out why – is your milk production not high enough? Is your current IOFC too low because of rising feed costs? Do something about it now.
2) Know your feed inventories
It frustrates me to no end when I hear “I’m running out of corn silage in a week” or even better “I ran out yesterday”. The best solution to this problem is probably a more expensive one than if you had planned on how much you could feed to certain groups to make it last as long as possible. And if you still needed to purchased additional feeds, you could have done so when the markets are favorable instead of forced to buy whatever is available. In a resent article from Dairy Herd Management Magazine “What did we learn from this year’s drought?” a dairy operation knew that they had enough corn silage to last them the year but they would have to buy shelled corn. Their forward thinking and planning allowed them to set a plan in motion. Another dairy operation forward contracted land rent and purchased feed. It may be expensive but he know exactly what those costs are going to be and can now react to them.
3) Understand how to forward contract milk and feed prices and other risk management options
Even if you don’t contract your feed or milk, get set up to do so in moments notice, you can react to changes in the markets more readily. Livestock Gross Margin (LGM) insurance is a contentious topic, not always available, and some have not been pleased with the outcomes. Regardless, you should still understand how it works, what your breakeven class III milk price, and corn and soy equivalents of purchased and total feed for your lactating cows at all times. Talk to a trusted insurance agent who has experience with LGM policies and know that if you call them the Friday morning of an open LGM period, they won’t have time for you. Call a few weeks before to get an account set up and give them a chance to understand your needs and what they can offer you.
These 3 things will help allow you to react to the markets immediately, not be victimized by them. Sitting back and choosing to not do any of these things is the riskiest way to dairy farm today. Drought, high feed costs, low milk prices, tight margins, and lack of resources is the new normal. The days of grin and bear the tough times are over. Now is the time to take control of your farm and its future.