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A great awakening is happening across the dairy industry as many dairy operations are beginning to engage in price risk management. It’s a whole new management frontier to explore. And it’s another responsibility on the farm for someone to do or oversee.
When a new endeavor is first adopted on a dairy operation, it often takes a while before that task becomes fully integrated. At first it is part of someone’s job description by default.
A common managerial theme in the dairy industry is “surround yourself with good people.” When it comes to risk and opportunity management for your dairy, how do you build the team? We teamed up to write this column and share the best practices we see among today’s well-run dairies.
Here’s what we – a dairy business consultant and a commodity marketing consultant – see as essential steps to creating a high-functioning team that gets results for the dairy business:
If it were as easy to program our emotions as it is to program our milk wash line, marketing would be as simple as setting a timer for great results.
Unfortunately, it’s not. Your emotions can run rampant when markets are volatile and you’re forced to make quick decisions to sell production or purchase inputs. The results can be painful.
OK, so you can’t flip a switch to control how you feel and react to situations. But you can take control of emotions, and that’s a big deal for anyone trying to manage commodity prices.
It’s fitting that Progressive Dairyman include a marketing article in the issue focused on peak milk production and quality. After all, these days, dairy producers need to have as much confidence in handling markets as they do handling their high-producing cows.
To gain that confidence, it’s best to examine what success looks like. Much like dairy producers group cows to manage their care, we could group our clients according to the characteristics they have as marketers – from the high-confidence group that has been through many market cycles on through to the newest clients who are still learning.
2011 did a lot to rebuild the spirits and the balance sheets of dairy producers. It also featured a spirited debate about dairy price reform, margin protection and safety nets.
As of this writing, the Dairy Security Act seems destined for inclusion in the 2012 Farm Bill in some form.
No matter what happens with the public policy debate, the risk management approaches that are being talked about really are apple-and-orange comparisons. No comparative calculators will magically tell you which approach is best for you.
Of all the tasks on a dairy producer’s to-do list, where does marketing fit? For some, it ranks up there with calculating rations or managing employees. For others, it is an inconsistent effort that gets attention on occasion. For still others, it is a very low priority.
In the 15 years since the dairy markets have been in place, most dairy producers have fallen into the latter two categories. So if you are looking for evidence that marketing is worth the effort, you’ll find there is very little data documenting the cumulative effects of consistent marketing.
Here’s another great question overheard at the Kimberly, Wisconsin, commodity marketing workshop taught by the advisers of Stewart-Peterson:
Q. “How does LGM dairy insurance fit into my approach to marketing?”
A. MARK LUDTKE: Great question, and one we’re hearing more frequently from clients. Lenders want and need their client farms to manage risk. In an effort to accomplish this quickly, they are taking a look at LGM insurance.
With all the management stresses on today’s dairies, it is certainly understandable that producers and their advisers would pursue what seems like a quick and easy route to managing risk.
