“We really like the dairy business, so we want to stay in it.”
This straightforward statement came from Bill Wavrin, D.V.M., on the November 4 Hoard’s Dairyman DairyLivestream in discussing why he sees so much value in protecting risk on his dairy farm.
“Risk management is a way for us to look forward and stabilize our business,” he continued.
The apparent instability of 2021 should be strongly motivating dairy farmers to reduce their risk and the volatility of producing and selling milk next year, said Tiffany LaMendola, a risk management specialist at Blimling and Associates. Just as the term “risk management” can encompass many aspects of a business, LaMendola outlined a variety of tools and programs available to help producers take a bit more control over their income.
A margin makes the difference
Whatever tool you choose should be used to ensure a margin for your milk, not necessarily a milk price, Wavrin advised. The Washington State dairyman described that he views risk management tools as price stabilizers as opposed to price enhancers. While it’s tempting to hold out for the best possible price, securing a price that will allow you to be profitable may be more sustainable for the business than waiting for that better opportunity and not doing anything, he explained.
“Locking a price that’s profitable leaves the small risk of leaving a little money on the table rather than exposing you to the large risk of these significant backdrafts that we have seen in our industry that have taken out generations of wealth in one year,” Wavrin pointed out.
Profitability is, of course, the number one goal for him and all dairy farmers, but it is often unknown in the environment of milk prices. Managing risk, he described, helps take that unknown into the known, which allows this dairy farmer and his team to function better as farm business managers. That pays off now and further down the road.
“We’ve been in this business for 30 years and discovered quite early on that it’s quite possible to work hard all year and end up with nothing or less than nothing. The personal part of that for us is that is not okay with me,” Wavrin stated. “That sort of volatility does not make me an effective manager of operational excellence when I have no idea whether my work will turn into something fruitful or not. So, we must have visibility into the future to retain our management acuity to execute an excellent plan. If we’re distracted by wild gyrations in future milk prices or future feed prices, we become less effective decision makers,” he concluded.
An ongoing series of events
DairyLivestream will air twice each month for the remainder of this year. The next broadcast, “Can we sell all this milk?” will be on Wednesday, November 18 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 events.