According to Trent Dado with GPS Dairy Consulting, dairy producers’ spirits are in pretty good shape.
“I’m guessing a lot of farms made money the first two quarters even though feed costs were at record highs,” he says. “Especially those dairies that locked in feed prices last fall.”
Although Dado says the biggest weight on producers’ shoulders continues to be feed prices.
“It can be tricky to know what a good feed price is with inflation, and producers should not go off the historic benchmarks of what feed price were,” he says. “Now that everything’s kind of at a new tier, it’s trying to determine what a new good price is for those feed products.”
Dado suggests going through your ration and consider contracting specific feed ingredients you use the most.
“The highest inclusion level is what you should consider contracting first because it has the largest impact on your feed costs,” he says.
In the upper Midwest, the most used feed ingredients would likely be soybean meal, canola, corn gluten, cotton and ground corn for those dairies that have to purchase corn.
Dado says that when dairies have their milk locked in or at least partly secured, they then can benchmark what feed prices they can afford.
“I really would say that you have to view your risk management strategy on both sides, both your input and output of the dairy, just with the way that prices have been fluctuating,” he says.
Milk’s Future
When milk prices rise, dairies often increase their cow numbers. However, Dado says that due to processor limitations or the capital limitations to expand, dairies are not flooding the market like they historically have.
“Normally when we were hitting $25 milk, historically speaking, dairies would just flood the market,” Dado says. “This year, so far, that isn’t the case. It is an interesting time. I think we’re starting to see certain areas of the country that can expand more rapidly. Areas like South Dakota, Texas and Kansas are really pulling their weight in terms of adding cow numbers. But in a traditional market, like Wisconsin and Minnesota, where the milk market is a little bit tighter, expansions are probably a little bit slower.”
Silage Inventory
Dado says he has had conversations with producers regarding how much silage to store this year.
“An often-over-looked expense is having excess corn silage inventory,” he says. “That’s one interesting thing about the dairy industry is we love having carryover. Whereas if you were to work for Target or Walmart, having extra inventory is a huge expense. I think there’s probably quite a few financial consultants who try to help make that picture clear that having too much inventory does break your balance sheet.”
He continues saying the decision obviously has to be made soon, when you are chopping—to sell it or use it on the farm.
“It kind of depends on the individual’s risk management,” Dado says. “Make sure that you have a solid three months of carryover of corn silage to allow for your new crop to ferment. After that, any extra inventory is likely going to be somewhat of a burden on cash flow.”
