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.

Here is the important thing to remember: LGM insurance is one tool available for producers, and it needs to be evaluated for its ability to help achieve the overall marketing goals you have for your operation.

Like any marketing tool, LGM has its pros and cons. For example:

• LGM can be used as a simple safety net. The trade-off for this simplicity is less flexibility due to only one sign-up opportunity in a month.

• Like other marketing tools, you get what you pay for: When evaluating LGM insurance, producers should pay attention to the payout probability. In some of the examples we run with producers, a minimum-cost LGM has a deductible of $2 per hundredweight, and the payout probability on that particular product turns out to be 10 to 15 percent.

While this level of coverage may provide a safety net, the market has to return to all-time lows for the product to pay out.

With all that said, for certain dairies, LGM may have a place in the risk management mix. There are worksheets available through the University of Wisconsin that will help you evaluate if LGM is right for you.

We suggest you review these worksheets with a consultant who can help you set overall goals for marketing, then point out the pros and cons of each tool en route to accomplishing those goals.

‘How much to sell and when?’

This question was asked at the St. Cloud, Minnesota, commodity marketing workshop taught by the advisers of Stewart-Peterson:

Q. “How do I know how much milk to sell at any one time? And how many months out?”

A. BRYAN DOHERTY: This question can be challenging to answer, since each operation has its own needs and goals for marketing. Risk tolerance and lender relationships are two important considerations that make marketing goals very unique to each operation.

That said, it’s important for a marketer to sell, ideally in increments and with discipline, enough milk to build the best possible weighted average over time. If you sell in sizable enough percentages, if prices fall you are able to maximize the difference between the bottom of the market and your average weighted price.

If prices go up and you’re selling in increments, you minimize the difference between your price and the actual. Generally, marketing decisions are made in 10 percent to 25 percent increments.

It’s really important to keep your eye on your weighted average price. If you do not, you could allow emotions to take over in your decision-making.

You might feel really good about a particular price you captured, and as a result become less vigilant in your marketing, only to find later that you did not sell enough at that high price to significantly impact your overall average.

As to how many months to go out, this also depends on operational goals and needs, but when prices are high we are not afraid to look at 12 to 18 months for sales. If prices are in the bottom of a cycle, selling out more than a quarter, or six months, may be all we are willing to do.

That’s where fundamental analysis comes in. It helps put current price levels into perspective by analyzing supply and demand factors, price trends and cycles.

For upcoming workshop locations and downloadable video segments from the Road to Better Marketing series, visit www.stewart-peterson.com , or call 800-334-9779 . PD