By Steven Schalla, Stewart-Peterson
Most people dairy because it’s what they love to do. Between the countless hours of tending to the cows and young stock, working in the fields, and fixing the latest broken piece of equipment, it’s a lifestyle in its own category, offering its own rewards and fulfillment.
At the end of the day, however, we all know that the dairy is also a business and needs to produce income to be sustainable.
It’s been well noted that many dairy producers are feeling financial stress, and that risk management tools are imperative to keep many farms going. However, engaging in strategic marketing can be useful to any operation, regardless of your debt situation or financial status.
Why do I say that marketing is useful for everyone?
One of the common goals of marketing is to reduce the stress of volatile markets. For anyone, stepping away from what we think is going to happen and instead formulating a firm strategy can be very rewarding. You are prepared for whatever comes your way, making life much more comfortable. You are free to focus on other management needs. Naturally, this is a desired position for any farm manager—to be efficient with time and focused on what really matters.
Even from a strictly fiscal standpoint, strategic marketing can be rewarding to any operation. Remember, the goal of good strategic marketing is to focus on the weighted average price of all of your production. By placing emphasis on our weighted average, we ultimately work toward a competitive advantage and have the flexibility to pursue whatever goals the operation desires.
There still are many dairies that currently have a favorable debt situation. These farms may not be highly leveraged but, at the same time, there are concerns about eroding equity, maintaining profitability and maintaining available cash. Good strategic marketing allows them to pursue the goals they desire--maybe expansion, improved genetics, new equipment or even generational transition and retirement.
Even for these mature farms, simply maintaining that comfortable position will continue to be a challenge with the volatility that is expected to continue in both the milk and feed markets. While it may be possible to “ride out” the stretches of poor prices, those who engage and take a proactive approach to marketing will have a dramatically better chance of reaching their personal goals.
And, as we mentioned above, there are also operations that have become very leveraged and therefore it is necessary to carefully maintain profit margins and manage cash flow in order to service debt. Here too, using a strategic approach to marketing is essential to ensure the bills are paid, as well as maintain the flexibility to take advantage of better prices when they present themselves, to dig out of the debt hole.
Whether it is reducing stress of volatile commodity markets or taking a proactive role in your farm’s financial situation, strategic milk marketing is for everyone. More and more lenders are taking this stance and will likely continue to require their customers to address their marketing needs.
All in all, it appears that marketing will continue to be an increasing factor that separates the good farms from the best.
Steven Schalla is a Market Advisor for Stewart-Peterson, Inc. He can be reached at 800.334.9779 or firstname.lastname@example.org.
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