Two dairymen who are test-driving web-based margin projection software are both using the data they’ve collected on their individual margins over the past year to evaluate their participation in the USDA’s new Margin Protection Program.
Dan Brick of Brickstead Dairy in Greenleaf, Wisconsin, and Jack Pirtle of P7 Dairy in Roswell, New Mexico, began using a one-year free license to MarginSmart from Wisconsin-based Dairy Analyzer LLC at the start of the year. Now that corn silage harvest is done, they are also updating their margin projections for next year to incorporate the cost of their new corn crop into future margins.
The producers have completed ongoing interviews about their experience this year in exchange for free use of the software, a $10,000 value. Progressive Dairyman recently interviewed both producers to find out what their 2015 margins are looking like in the program.
Dan Brick
Brickstead Dairy
Greenleaf, Wisconsin
“2015 is not going to be as good a year as this year, but I think we’ll show a profit still,” Brick says. “I’m pretty happy with coming off a high-milk-price year and showing profit in the year following it.”
At the time of the interview for this update in October, Brick’s margin was showing a negative $1 margin six months out.
Brick believes the market has overcorrected for milk surplus already and by May of next year prices will be looking better than they do right now.
“I’m holding off on doing anything on milk,” he says. “I’m feeling that milk prices can’t go any lower than the futures are saying right now. They should only go higher.”
However, Brick has already locked in prices for his corn through the end of 2015. He typically contracts a majority of his feed prices for the next year in September and October and then finalizes any remaining needs, if any, in March and April.
“One thing I am really working on is getting feed costs in line with the milk prices that will be coming next year,” Brick says.
One feed price that will be more expensive next year is Brick’s corn silage. He’s already predicting his silage should be $2 more per ton to produce due to cool summer weather and wet fall weather. Since Labor Day, some of Brick’s fields have received more than 10 inches of rain, delaying harvest. Some fields, he says, will have a 5-ton-per-acre yield decrease. Brick values his corn silage at his own cost of production in the margin projection program.
“I think we’re in a six-month market,” Brick says of his confidence in the market’s futures.
As for his own margin projections, he’s confident that they are accurate at least three months out. This December he plans to spend some more time with the numbers in his projections for 2015. By then he should have a better idea about his future milking cow numbers and cattle inventory.
“We’re going to be happy with a profit in any month next year,” Brick says. “We are going to need to make some milk marketing moves when they present themselves.”
Brick says making those moves should be easier coming out of a high-margin year like 2014.
“I think we’re going to see small windows to lock in profits,” he says. “When we see 20-cent or 25-cent positive margins, we are going to need to secure those profits.”
This time around Brick says he is encouraged by the fact that he can watch his margin projections on a daily basis instead of knowing them on a monthly or quarterly basis.
Headed into the new year, Brick has already taken advantage of a new feature in the program that allows him to customize when he receives margin projection updates. Previously, the program’s default sent margin projection text messages at 7 a.m. and 5 p.m. He has added another alert at noon to send his new margin projections after cheese market trading has closed.
Jack Pirtle
P7 Dairy
Roswell, New Mexico
“I’m going to use MarginSmart to decide if I want any protection over and above the free protection provided by the Margin Protection Program,” Pirtle says. “Maybe I’ll end up selling milk on the futures market and using MarginSmart as my tool to manage my margin protection.”
Pirtle has recently attended three different meetings to learn about the new margin insurance offered in the Margin Protection Program. He’s still not sure if paying premiums for additional margin coverage would be money well spent.
With more than five weeks left before the deadline to sign up for margin insurance at the time of the interview, Pirtle said he planned to spend more time analyzing his margin numbers that he collected over this past year and compare them against the national average margin that will be used to trigger payments.
To this point, he hasn’t forward-contracted any milk while test-driving the margin projection program.
“That’s the only thing I don’t use it for,” he says.
That’s more than likely to change in the coming year. He’s shopping for brokers who could suggest milk marketing strategies. In the past, he has been wary of these brokers and their suggestions because they relied on “model or average” dairy projections. Pirtle feels his margin projection program gives him a good handle on what is actually going to happen on his own dairy.
During the winter months, he plans to do a line-by-line analysis of the program’s past projections and compare them to his actual bottom line. He’s confident the program’s margin projections are within $0.25 to $0.50, but perhaps the track record over the past year has been even better than that.
“Before I had [the program] I wouldn’t really know what margins would look like into the next year,” Pirtle says. “I think in 2015 I’ll have an opportunity to lock in a one-dollar margin on average.”
Pirtle is trying to figure out how to “come back to reality” when it comes to dairy margins. He’s pondering what a realistic margin for his dairy in a down year looks like. Is it $1 per hundredweight, $0.80, $0.60?
“If someone told me I could lock in one dollar in profit for 2015, would I do it? Well, I don’t know. It sounds like I could make that work. That’s after paying all the bills – rent, feed, employees, maintenance and all expected expenses,” Pirtle says.
He admits this year’s high margins have lulled him into complacency when it comes to getting excited about margin projection.
“It is hard to come off of five-dollar-per-hundredweight profits to looking at 60-cent or 80-cent margins. To this point I haven’t even gotten excited if a monthly projection isn’t at least one dollar. At some point, however, I’ve got to come back to reality.”
Since finishing up corn silage harvest, Pirtle says that he’ll keep his corn silage price for his margin projection the same as last year. His local market for corn silage remains strong, and there’s more demand than supply in his area of New Mexico.
Unlike Brick, Pirtle prices his silage at market value, not production cost, since his family’s custom-cropping business would otherwise be selling the silage his dairy wasn’t using.
Like Brick, Pirtle has also customized the time he receives margin updates now that the option is available. His updates now come in at 8 a.m. and 4 p.m. Before, he was receiving texts as early as 4 a.m.
The change has come in handy as he’s been watching for opportunities to lock in 2015 margins. For example, Pirtle had set an alert in the program to message him when a $1 margin was available as a forward contract in January.
“At 4 a.m. a couple of months ago, my phone goes off, and I’m stumbling around looking for it. It said my target had been reached and I should take appropriate actions. I thought, ‘It’s 4 o’clock in the morning. Why is it telling me this?’ So I just turned the alert off,” Pirtle says. “Now I can have that same triggered alert sent at a more convenient time. That’s been good to have.” PD
If you’re interested in applying to be part of a future Progressive Dairyman peer technology group, email Editor Walt Cooley for details.
Illustration by Kristen Phillips.
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