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Tighter lending criteria in the last five years has led many enterprising dairy producers to look after their lending relationships almost as carefully as they do their cows.
While cows generate the cash, it’s the lender who can make modernization, growth and smooth sailing through unexpected cash flow troughs possible.
More and more dairy producers are learning about their risk management tools and strategies. However, the industry is “a long way from maturity” when it comes to consistent use, says John VanSickle of the Food and Resource Economics Department at the University of Florida.
Maybe that’s because producers are finding a lot more success producing milk these days. Record production is predicted for 2012 and, while educators are doing their best to increase use of available tools, barriers to price risk management still remain.
All over the business world the prevailing opinion is that market volatility is here to stay. As a result, the world’s leading businesses are taking action to manage risk.
In fact, a 2011 study by the consulting firm Accenture says risk management has moved up the ladder of importance significantly since the same study was performed in 2009, and companies are putting people and systems in place to manage risk.
Will this trend extend to America’s dairy farm businesses?
Deb Reinhart and Dave Geiser, who made the decision to begin a consistent marketing program in November 2009 and agreed to share their experiences with Progressive Dairyman readers last year, recently provided an update on their journey to better control of their business through better marketing.
It’s a soggy day in late spring and four dairy producers from different parts of the U.S. check their positions in the trading simulator, then connect with each other via phone. As is typical, they begin the teleconference by discussing weather and crop progress – or frustrations – in their various locations. Then these dairy producers dive into something they feel even less control over than the weather – the markets.
Month after month since February, nine participants keep coming back to two trading peer groups. The groups are facilitated and coached by Mark Ludtke of Stewart-Peterson, and participants use a simulator from the University of Florida to experiment with trades.
“Opportunity is missed by most people because it is dressed in overalls and looks like work,” quipped Thomas Edison.
Kudos to the dairy producers who have joined trading simulation groups to learn how to apply marketing strategies. Learning this stuff is a lot of work.
“I wish I could just sit back and get the milk check at the end of the month without having to learn all this,” one producer said in a trading group conference call. “But I know that isn’t a good long-term solution,” he added.
So they keep on keepin’ on. The five producers who make up the first Progressive Dairyman Trading Simulation Group are tracking their positions using the University of Florida’s Financial and Agricultural Commodity Trading Simulation – FACTSim for short. They’ve agreed to monthly conference calls to compare notes on their feed and milk pricing strategies and the impact of their decisions.
Joe Stewart has been dancing around the edges of milk marketing for several years. In fact, in mid-2009, he was profiled in Progressive Dairyman as a producer who wanted to take his farm marketing to the next level and was unsure how to do that.
At that time, a marketing assessment from Stewart-Peterson found Joe scored a 2 in the “experience” area, one of five critical success factors for good marketing. On a scale of 1 to 5, with 5 being the best, experience turned out to be Joe’s chief constraint – the main thing standing in his way of marketing well.
Beginning hurdlers are often afraid of the hurdle. When they approach it, they slow down, then jump over it awkwardly. Sometimes they hit the hurdle, fall and do not wish to attempt another one.
The same is true of dairy marketing. Producers are being told that using risk management tools will help make their financial road smoother.
Yet each risk management decision presents a hurdle: How do I make this decision? Should I or shouldn’t I jump? What if I fall?
