It is amazing how much the current and future outlook for dairy production has changed since I last penned an article for Progressive Dairyman in June. At that point, experts were forecasting a record crop and producers’ attention was focused on where the milk price might be for the rest of 2012 and into 2013. As I write this, we now are wondering just how small the crop might be. By the time you read this, we will know with much more certainty what to expect corn and bean yields to be once they are harvested.
I’m also looking back at my previous column on federal agricultural policy with great disappointment. It seems Congress cannot agree on a Farm Bill or a drought relief plan. It is frustrating to see that we cannot put political victories aside to focus on what is needed to ensure the world’s safest, most economical, abundant food supply. Maybe that old song verse – “you don’t know what you’ve got ’til it’s gone” – might someday apply?
It is challenging times like these that ultimately determine the success or failure of livestock operations. Those that spend time not only working to increase their production but also critically thinking about how they will manage the risk inherent in their operations will be those that “live to fight another day.”
We have been talking about risk management techniques with our staff for some time. We have encouraged our producers to plan for the bad times and really think about what might happen from a financial perspective if large cost or revenue swings happen. It’s times like these that really underline the importance of a risk management strategy, a solid financial base and strong communications with your lender.
I wish I could give you a checklist of things to do now to save your operation from a drought disaster. Unfortunately, the time has passed to do much about it other than to deal with reality and start planning for the future with the “facts” at hand. Here are some points our customers identify as important:
• Know your current and future forage needs – it is the basis for feed program planning.
• Don’t get locked into any one ingredient – keep the options open.
• Prices are important but margins are critical. It’s not what you spend; it’s what you have left afterwards.
• Understand the top three drivers of your cost of production and look at them on a current and projected basis.
• Can you reduce the risk on your major inputs and outputs? What does that cost?
• Decreasing production makes economic sense in very few situations. However, chasing the last pound of production regardless of cost is generally a loser as well. Do you know why certain items or production practices are part of your program? Do they pay? Were they needed at one time but now times have changed?
• Are you spending time on $50 decisions or $5,000 decisions? Who is “running the numbers” and planning for changes that could radically affect your profits? Do the cows run your operation or you?
• When is the last time you scheduled a meeting with your lender? If your answer is not for a while, you might be expecting an invitation soon to hear answers to many of the questions listed above.
• While talking to others to gather ideas is a good practice, don’t just run with the crowd. Your set of circumstances may dictate a different path.
I hope the results of the fall harvest are all bigger and better than we fear they might be. In fact, fear and uncertainty might be one of the biggest risks we have to overcome. PD
Al Gunderson
Vice President of Sales and Marketing
Vita Plus Corp.
