Many Depend on Your Risk Management
Dec 27, 2010
By Ron Gibson, West Weber, Utah
Gibson milks 1,400 cows at his Gibson's Green Acres family dairy near Ogden.
Risk management has taken on a whole new meaning for me in the last two years. I used to view it as something optional that I could play with but that wouldn’t really make that much of a difference in the end. This notion is no longer true. Let me explain.
Today I did payroll. Many people rely on the success of our operation for their livelihood and future. When I passed out the checks, I was once again reminded of the gratitude and appreciation of our employees.
My son Bennett, 13, and my nephew Kendle, 12, are at the farm every day after school and on weekends, working hard. They are excited about what the future holds for them. My 95-year-old grandmother worked every day of her life, along with my grandfather, to scrimp and save and build the founding blocks of this operation. My parents, who have been very supportive of every step of our expansion, would have been much better off financially if they had sold the farm instead of passing it on to my brother Kerry and me.
I realize that the losses of 2008 and 2009 varied greatly depending on location. In that 18-month stretch, many dairies lost a generation’s worth of equity. How many times can we as an industry survive that?
Our story is similar to all of yours. Some of your operations have been in the family for generations. Some are still in the first generation. Regardless, we are all family farms. People all across the world rely on our work. How can we dare to put that all at risk because we are not willing to understand risk management?
When we put strategies in place that guarantee a profit on a percentage of our milk, we are securing a future for everyone that depends on us, not just ourselves.
It’s important to find trusted advisers who can help us navigate the markets. I get daily and weekly reports to help me know at all times where our markets are. Many milk companies that buy our milk have programs set up to help us manage risk.
Although risk management tools cost money, many times there are others, such as milk companies, banks and feed companies, that will be willing to help us with the cost of risk management. These companies are often willing to pay the risk management fees until milk is sold or the feed is fed for that month.
One thing that is new in our area that I think will be quite beneficial is the Livestock Gross Margin, a dairy insurance program. It takes into account the price of feed and the price of milk and lets you lock in that margin for a relatively cheap premium.
We all have to decide what we feel comfortable with. As for me, I know that we have too many people relying on us to do nothing. Every generation has its issues to deal with. I believe that volatility and risk are moving their way up the list as challenges for us. I hope we can turn those challenges into opportunities.