“If you happened to max out on Dairy Margin Coverage (DMC), are going to receive Coronavirus Food Assistance Program (CFAP) payments, you did Dairy Revenue Protection (DRP), or are locked in at a nice futures price at the co-op, actually those numbers would suggest you’re probably going to have an up year,” Cornell’s Andy Novakovic said during the June 10 Hoard’s Dairyman DairyLivestream.
That, of course, is dependent on what happens with prices and consumer confidence during the rest of 2020. However, his point is relevant and important. Farms that have taken measures to protect their operations made a huge difference helping them to weather the storm.
For farms that didn’t choose to sign up for DMC, many of the other programs including CFAP and DRP can still be utilized to provide some protection. Novakovic warns against choosing to do nothing.
“If you’re in a business that was highly leveraged, you have some solvency problems, you didn’t do anything to protect your price, you didn’t sign up for DMC, and you don’t really like futures markets or DRP, that’s a scenario for some really negative returns,” the experienced economist said.
Rather, bouncing back during this market of volatility requires flexibility. As Novakovic explained, both profitability and solvency are needed.
“There’s a question about how hard we get hit, which is basically a profitability question. But there’s another question about how sturdy you are to take a blow, and that’s a solvency question,” he explained.
Although dairies are facing these challenges, many other businesses around the country also are facing challenges as well. In particular, DairyLivestream guest Steve Kyle expressed concern about all small businesses.
“One very possible outcome of all this is consolidation into larger businesses at the end of all this. The ones that are going to go under are the smaller, more marginal ones,” the Cornell economist said. “The bigger ones will remain and may well gobble up or at least take the market share that the little ones used to satisfy. Consolidation is something that is a thing to worry about.”
Kyle and Novakovic were joined on DairyLivestream by USDA Chief Economist Rob Johansson. He shared information on USDA programs and insights into coverage opportunities. Also discussed during the webcast were trends in consumer confidence and expectations for a potential second wave of COVID-19.
An ongoing series of events
DairyLivestream will air twice each month. The next broadcast will be on Wednesday, June 24 at 11 a.m. CST. Each episode is designed for panelists to answer over 30 minutes of audience questions. If you haven’t joined a DairyLivestream broadcast yet, register here. Registering once registers you for all future broadcasts.