"You don't put money in your pocket from the milk price, but from the margin," says Kevin Bernhardt, University of Wisconsin-Platteville and the UW-Extension Center for Dairy Profitability farm management specialist, told audiences at the Professional Dairy Producers of Wisconsin annual business conference in Madison, Wis., earlier this week. It’s the margin between milk price and input cost that counts, he adds. “That's where you make your money."
Today's dairy producers need skills in three areas to accomplish this, he says. These are: production management to get cows to produce quality milk, cost management to handle how much you spend to get that milk, and marketing as a way to create margins between the first two. Knowing how to balance between these three — or at least not to get too stressed out when doing any of them — is the key.
"If you take the risk away, you're taking opportunity away," Bernhardt says. "That's the way risk works, and the way risk management works."
So, how can you manage your exposure to pricing risks? You have to use the futures market to lock in milk prices, as well as input prices. He encourages producers to do so on both sides of the ledger, realizing you also need to be able to live with the fact that you won't always be buying at the lowest price nor selling at the highest price.
“It’s about your mindset,” he explains. “Good producers hate to be wrong, but good marketers need to get used to being wrong.” The point is to protect your business and follow your marketing protocols so that you act when your trigger is tripped. You can’t wait around for “what if”.