Dairy Thought-Leaders Address Challenges and Risk Management Tools

Look left, then look right and you’ll understand all too well the challenges that face dairy producers are certainly real. The rollercoaster milk prices we’ve seen in the last couple of years underscores just how volatile our industry is. Add in the fact that we don't have a farm bill finalized yet and the Federal Milk Marketing Orders Hearings are still unfolding highlights that there is a lot of uncertainty in the dairy economy.

Recently on a Farm Journal Milk Business webinar, three dairy thought leaders talked about the biggest challenges facing producers and what their takes are on risk management strategies. 

Lucas Sjostrom serves as the executive director of the Minnesota Milk Producers Association and is the managing director of Edge Dairy Famer Cooper. He also owns and operates a dairy farm and cheese plant along with his family near Brooten, Minn.  

“It’s a changing environment,” he says. “At least in the upper Midwest. Milk plants are full, you're also just managing your risk on where will my milk go and hoping that my milk plant is secure. I think that's the biggest thing that's changed.”

Jeremy Van Ess, an owner of Van Ess Dairy and Legacy Dairy in Sanborn, Iowa, which is home to 10,000 cows, says the variability from milk plant to milk plant and what some are paying compared to others is a big challenge that he sees unfolding throughout the Midwest. 

“I'd say a big challenge in our area is it’s just saturated with milk. Some markets are dramatically better than others right now,” he says. “It's a unique challenge that we've never really had since we've been up here in Iowa in the last 17 years.”

Ed Gallegher, president of Dairy Farmers of America (DFA) Risk Management program, says producers' milk prices are significantly down from last year’s highs, while feed prices and other input prices have remained elevated.

“One of the primary challenges that we've been dealing with our farmer owners this year is helping them manage through that volatility and that the reduced earnings,” he shares, stating that DFA had record use of their forward contracting programs and Dairy Revenue Protection in 2022. “Unfortunately, some of our farmer owners didn't maintain very consistent use of their strategy into 2023, even though there were some pretty decent opportunities a year ago at this time.”

Gallagher reminds producers that this isn’t the first rodeo of up and down milk prices, feed prices and profitability. 

“We're fortunate right now that the markets are picking back up. When you look at the 2024 pricing opportunities, there are a lot of good opportunities, especially for dairies east of the Mississippi River that have grown a lot of their feed. There are some opportunities to lock in some profit margins and that's what we've focused on at DFA and our risk management program,” he says. “When we look west of the Mississippi River, we're suggesting at least do something on your milk price to prevent the disaster.”

Van Ess says they are trying to find a margin that they can live with and try to direct their focus on what they can control a bit more—feed prices. 

“There are certain times when we will try a lot of changes on feed. That's our biggest expense obviously. And if we try something and we track it real close and if it doesn’t look like it's working, we'll put it back in. But we've been surprised at how many times we've done that, and we haven't seen really the adverse effects that we thought we might,” he says. “You can save $0.10 here and $0.10 there and it all kind of adds up.”

Sjostrom stated that one role of his job is to keep dairy farmers in business and states he is, ‘not batting 100% with that.’

“But that's created a lot of opportunities with retired dairy farmers who are now heifer growers, retired dairy farmers who have great dry cow facilities, or maybe a large milking herd that can't expand their regulatory footprint,” he says. “So, I think those opportunities are there to get creative in the partnerships as they go forward.”

Sjostrom said on the commodity side, the biggest thing to understand is the market doesn’t care what your cost of production is.

“The market just wants to reward those with the lowest cost of production,” he says. “So, finding your niche, whatever that might be, outsourcing whatever you're maybe not good at, whether that's calves or dry cows or I've heard of many opportunities. That’s a thing to focus on.”

To listen to the entire conversation with these three producers talk more about challenges and risk management opportunities, click on https://fjwebinars.com/account/register/dairy-herd-management/167