6) Develop a written marketing plan. Most producers have great difficulty in making a forward pricing decision because they don’t develop a written marketing plan. A written marketing plan takes several factors into consideration. First, a producer should know his/her “breakeven milk prices.” There are three important breakeven prices: 1) The milk price needed to cover variable cash costs. 2) The milk price needed to pay variable cash costs and debt payments. And, 3) The milk price needed to pay variable cash costs, debt payments, family living expenses and an acceptable profit. The first price will keep in business in the short term and the second will keep you in business in the long term. The third makes it worthwhile to go to the barn every morning. Second, a written plan should take into account your farm’s degree of financial risk. The more debt you have the greater your financial risk. As your financial risk increases it should be reflected by a more conservative marketing plan that is willing to forward price increased amounts of milk as long as doing so insures you meet your debt obligations. Third, a written plan should have various milk price levels at which you have determined you are willing to sell predetermined amount of milk. By making this roadmap ahead of time you can avoid a lot of the emotional problems associated with actually “pulling the trigger” and making a forward pricing decision. It is recommended that these pricing levels reflect a consensus of all the individuals on your farm that have a major financial stake in the business. Fourth, a written plan should be flexible. Even though you write down your plan, revisit it often and revise it as milk prices and market fundamentals change.
I don’t believe milk marketing using forward-pricing tools is for everyone. To be a successful milk marketer, you must make a commitment to follow these six factors. If you are not willing to make such a commitment, then you will not be a successful marketer. That decision is yours to make and your decision to not market milk using forward-pricing tools should not be judged by others. However, if you do make the commitment and follow these six factors it will be worth the effort.