Thursday, October 15, 2009

Milk Pricing Strategies or Profit

While this maybe a touchy subject, It is what is on my mind for several weeks so here it goes.

First question:Do you buy insurance?
Silly question right! Most dairy farmers insure their car, house, health, machinery and cattle. So how much would you pay to insure a profit?

Second question: Do we price milk or lock in a profit?
Whenever we have discussions most people want to lock milk price or feed price but not both. Both is the logical answer. Feed is the largest expense on most dairy farms and milk is the largest income source.Can the government do it for you Santa Claus to come early this year Dairy Herd Management Magazine - Industry News. While this may sound good they are not going to make up for the last 8-12 months of negative income.

How do we lock a profit for income over feed cost?
While not complete, using the major costs and income is a start towards Insuring Profitability.
1.One way to do is direct contracts with both you Coop or milk buyer and with your feed supplier.
2. Another way is to do it on the futures market (Hedging only no speculating Please) Lock everything you can at about the same time IE Corn , Soybean Meal, Milk Class III, and Dry Milk. Lot’s of fun hey! I am too small , how do I get margin money? Puts and calls.
3. Livestock Gross Margin LGM a relatively new program. Lock in 11 month’s production and feed cost at one time. Similar to crop insurance done by USDA Risk management service sold by independent agents.
Talk with your financer today to Insure Profitability Today. They should know what it is worth.
If we get comments on this post I will follow up with more details.
On the lighter side The Dairyman's Blog: A Friday morning farm update#links

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