At his dairy near Van Dyne, Wis., John Ruedinger works with his nutritionist, feed manager, veterinarian, lender and marketer to take his business to “the next step.”
A producer’s journey toward a solid marketing program
In 2000, when he was still doing most of his dairy’s day-to-day work and contemplating an expansion, Wisconsin’s John Ruedinger had a revelation.
"This is crazy," he remembers thinking. "I should be doing more with a pencil instead of my back."
That first year, he began dabbling in the commodity markets. He would lose $120,000 before finally, in 2003, making $30,000 on his trades. That year’s earnings allowed him to pay the salary of the employee who fed his 400 cows, reducing Ruedinger’s daily physical workload.
"That showed the value of pushing a pencil to be more productive," Ruedinger says.
Eleven years later, Ruedinger’s marketing savvy has grown along with his operation. His herd size has increased to 1,000 cows and his farm to 1,350 acres of corn, alfalfa and winter wheat. And he is regularly making marketing decisions to protect his milk prices and feed costs, "two areas that change and move quite a bit," he says.
"As your business grows, you have to change," Ruedinger adds.
Ruedinger, who spends at least 30 minutes each night educating himself on marketing, believes risk management means managing his dairy’s margins rather than only the milk price. "That’s where we need to look in the future," he says.
He credits his marketing and hedging program with helping him maintain adequate cash flows and profit margins. Forward contracting has also allowed Ruedinger to plan for growth, as he did in 2003, when he expanded his operation, and again in 2009, when he built a six-row, drive-through freestall barn. He plans to grow his milking string to 1,200 cows over the next three to four years.
In creating his marketing strategies, Ruedinger seeks to maximize the separation between the average price he receives and the final price. "We look to build a solid average price," he says. "It’s not about picking the tops and bottoms. It’s about protecting your bottom line from the risk of low prices."
Following that strategy, Ruedinger says, it’s possible to consistently make a profit. "You position yourself to capitalize on higher prices and to minimize lower prices," he says. "I try for middle ground."
His goal is to manage the margins between his milk price and his input costs and to mitigate the
times of volatility that seem to come all too often. "Sometimes we’ve even contracted below our cost of production," Ruedinger says. "You have to do that sometimes."
Ruedinger’s marketing history also reflects that strategy. Yearly results for his milk marketing don’t always reveal lucrative gains, but they do show that he avoided major losses.
|"You get out of a marketing program what you put into it," says Wisconsin dairy producer John Ruedinger. "It does take time."
In 2008, Ruedinger sold 16.68 million pounds of milk and hedged 66% of it. The Class III price averaged $17.44 per cwt. His final average price reached $17.40 per cwt., reflecting a loss of $0.04 per cwt. His options costs through the CME Group totaled $6,696. (To pay the cash requirements of his trading costs, Ruedinger relies on a separate line of credit that he dedicates exclusively to milk hedging. From that, margin calls are automatically deducted at the end of each trading day.)
- December 2011