The good news, says Sam Miller, M&I Bank senior vice president of agribusiness and food banking, is that dairy input costs are coming down and milk prices are on the rise.
But, that’s small consolation for dairies coming off a terrible year.
Miller estimates that dairies that were open in the market — those that did not lock in milk or feed prices — lost about $720 per cow this year.
He projects a profit of about $300 per cow next year, if prices continue to rise as expected. “But with this year’s losses, dairy farmers have a big hole to crawl out of,” he told audiences at the Dairy Business Association’s annual business conference last week. Keep in mind that these losses will add to next year’s cost of production.
Complicating the picture is increased market volatility. Considerable price swings have occurred in each of the last three years, Miller says. “Dairy markets seem to be on a three-year cycle, but the highs are increasingly short-lived and the lows stay longer.”
Therefore, you need to look at what the market is offering you in terms of opportunities — and that means becoming serious about your risk-management plan.
“I cannot stress enough the importance of the help from our financial advisor and lender this year,” says Ben Peterson, co-owner of Four Cubs Farm.
You need to get ready for the next downturn now, Miller says. There’s a lower margin for error given the current financial picture of many dairies.
“We burned major equity in 2009," says Gordon Speirs, owner of Shiloh Dairy. “I don’t want to make rebound mistakes in 2010.” That means looking at risk-management as an insurance plan, not an opportunity to beat the market.