DeGroot is a third-generation California dairy producer whose San Joaquin Valley operation milks 2,400 cows.
**Extended comments highlighted in blue.
There are many different approaches to managing risk in agriculture. It can be confusing and overwhelming to try and digest all the methods of risk management available to us. There are upsides but also downsides.
Risk management tools can be risky themselves. For that reason, we have chosen not to contract the sale of milk. We do, however, contract a small amount of our commodities. Some people say that if you are going to contract the cost side, you must contract the income side. That makes sense, but it’s definitely easier said than done.
Contracting milk has been a topic of discussion in our operation, but, up to this point, we have decided against it. One tool my grandfather invested in years ago was the purchase of milk quota. Quota milk pays you about $1.70 more per cwt. than the over-base milk price. We own quota on approximately half of our production. It cost my grand-father a lot of money, but over the years the investment has paid off for our business.
In our operation, we grow 60% of the feed in our ration. Having the ability to farm our own ground and make top-quality feed at a reasonable price is a big component in keeping our ration costs down. By farming alongside dairying, we are able to manage costs that we might not be able to if we didn’t own ground.
Besides growing a majority of our feed, we contract some commodities. We have contracted commodities for several years. In the past, it was easy to contract for a 12-month period, but these past few years have been tough. The markets have been so volatile that we have just contracted short-term feed. Contracting feed has been a great tool for us, so we will continue to utilize it.
As we look into the future of the dairy industry, I realize there is going to be a need to do business differently. It’s not just about managing cows and keeping equipment rolling. The instability in the feed and milk markets has either put people out of business or caused them to become more efficient and sharpen their business skills. I know that we need to take a proactive approach to how our business is operated to ensure that we will be here for future generations.
|DeGroot's Most Recent Prices
|Milk (3.5% bf, 3.4% prt, 77 lb.)
||$18.40/cwt. (over base), $20.10/cwt. (quota)
|Alfalfa hay (delivered/premium)