Risk Management Gains Traction
Oct 04, 2012
In a sign of dairies’ growing sophistication and need, risk management took a front seat during yesterday’s Virtual Farm Tour at World Dairy Expo.
United Pride Dairy of Phillips, Wis., devoted a good chunk of the session to talking about how it uses a marketing strategy with milk and feed hedging to manage the uncertainty it faces.
That’s not a subject that’s typically explored in these Virtual Farm Tours. Normally, successful producers describe the nuts and bolts of their dairies, using photos and videos to describe their cows, barns, people and operations.
Sure, owners Jon Pesko and Ed Jasurda discussed things like cow comfort, housing and employees. They told the story of how, in 1996, they merged their two neighboring dairies and then expanded from a 300-cow herd to the 1,800 they milk today.
But yesterday’s Virtual Farm Tour also focused on an increasingly necessary element, risk management, which is still not widely used by dairies. At United Pride Dairy, however, it plays a key role.
Pesko and Jasurda can pinpoint the start of their risk management operation to late 2009, when they decided to expand their dairy and upgrade their milking parlor. The two dairy partners realized they needed more price certainty.
“Until then, we only had limited use of marketing tools,” Pesko said. “But with the expansion, we had more money at risk and volatility was increasing.”
Their need brought them to Stewart-Peterson, the risk management firm that sponsored today’s session. Pesko and Jasurda also brought in their lender and communicated their plans. “After 2009, it was tough to get a lender to talk to us about expansion,” Pesko said. “So we had to take out some of the risk.”
Working with their market advisor at Stewart-Peterson, they developed a clear understanding of their goals and strategies. They learned about a weighted average price and rehearsed various price scenarios so they wouldn’t be caught off-guard if the market took an unexpected turn. The expansion went forward. Their risk management savvy slowly grew.
Today, United Pride takes a disciplined and consistent approach to marketing. While they receive daily emails and a weekly call from Stewart-Peterson, Pesko and Jasurda aren’t preoccupied with this new element of their business. “We already have so much drawn out in advance,” Pesko said.
One of today’s take-home messages was that risk management is essential for the success – and future – of United Pride Dairy. It takes initiative to decide to do it, time to get educated and commitment to stay with it. But a risk management program has helped keep the dairy in business and looking forward. For these producers, operating a dairy with a solid risk management plan is as essential as their rotary milker, sand separator and nutrient management program. Risk management is not the future anymore. For progressive dairies like United Pride, it’s the here and now.