Creative Profit Seekers

April 5, 2011 09:19 PM
 
Creative Profit Seekers

Replacing corn with less expensive feedstuffs and buying puts yields a modest profit

Ag economists say 2009 was possibly dairy’s worst financial year since record keeping began, and 2010 wasn’t a whole lot better. The continued one-two punch of low milk prices and sky-high feed costs pushed even some of the best-managed operations into the red again this past year.

Some producers, however, put on their thinking caps and managed to eke out a small profit in 2010 through a combination of creative buying here and selling there.

One such operation is Majestic View Dairy LLC, in Lancaster, Wis., whose owners, Ron and Terri Abing and John Haskins, managed to turn a modest profit of 5¢ per cwt. in 2010. Not counting depreciation, they also made a small profit in 2009. Their 1,100-cow herd average is 27,800 lb. per year, well above state and national averages of 20,000 lb.

A Time to Sell Corn. How did they pull it off? One key way was by replacing the corn they grew with less costly ingredients, thus freeing up their corn to be sold. Abing says the partners have sold the corn they raised for $3.80 to $6.02 per bushel.

Two ingredients the dairy has been buying to replace its corn are corn gluten feed and corn syrup. Corn gluten costs about half of what corn cost.

In 2010, the partners also presold much of their milk at a profit.

"We bought milk futures puts on the Chicago Mercantile Exchange nine to 12 months before 2010," when profitable selling prices presented themselves, Abing says.

The producers are looking forward to a profitable 2011. "We have been able to sell a lot of milk at $17 to $18 per cwt. for the early months then bought a lot of $15.50 per cwt. puts for 20¢ through the Livestock Gross Margin program for the last two-thirds of the year," Abing says. USDA’s Livestock Gross Margin for Dairy Cattle insurance policy provides protection against the loss of gross margin (market value of milk minus feed costs) on the milk produced from dairy cows.

With prices secured for this year, their focus has shifted to 2012 because some experts think prices could be down like they were in 2000, 2003, 2006 and 2009.

Abing and Haskins have twice-weekly marketing meetings. One big decision the partners recently made was to purchase several hundred acres of cropland.

It was a huge undertaking considering the price of land, but the land was right next to the dairy and it fit in with their long-range plans, Abing says. Those plans are to have enough land so they can sell corn when market conditions dictate and to own a land base on which to apply manure.

Good Land Move. They’re glad they made the move to buy land before buying a methane digester, which cost about $1 million. "With $6 corn and $14 beans, it’s nice to own our own crops, so we don’t have to be dependent on buying them, and we can sell corn from 300 to 400 acres," Abing says. "Five or six years ago, we weren’t selling any corn."

As for the future, Abing says the dairy is at capacity and the partners and their families have no immediate interest in expansion. "Although if a dairy in the neighborhood comes up for sale, we’ll probably look at it," he says.

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