The number of Michigan dairy farmers using risk management to protect milk prices has risen nearly threefold since 1999, up from 6% then to 22% in 2011.
That’s according to a comparison of surveys conducted in both years by Michigan State University (MSU) and analyzed by Chris Wolf, an MSU dairy economist. The use of risk management tools to protect feed prices also increased, from 32% of farms in 1999 to 39% in 2011. Four hundred fifty eight Michigan dairy farmers participated in the 1999 survey; 225 participated in the 2011 survey.
Larger herds and farms with more crop acres tend to use risk management tools more as do those with more education. Older farmers and those who hold farms as sole proprietorships tend to use less milk risk management as do members of dairy cooperatives.
Cost, basis risk, difficulty of use and lack of understanding of risk management tools were all cited as reasons farmers do not use risk management tools more often.
“Perhaps the longer-run solution to dairy farm price risk management is dairy Livestock Gross Margin-Dairy (LGM-Dairy) insurance,” says Wolf. The insurance can provide margin protection—the difference between milk and feed costs—without requiring users to hedge both milk and feed.
“Future national policy decisions such as funding for LGM-Dairy and which dairy policies are part of the next farm bill will play a major role in which tools are available and how attractive they are to U.S. dairy farmers,” says Wolf.
The abstract of Wolf’s paper, published in the July issue of the Journal of Dairy Science, can be read here.