Dairy Lender: Risk Management is Crucial

September 29, 2010 01:03 PM

By Catherine Merlo

Farms are cash-flowing again with the uptick in milk prices, but there’s a lot of concern about rising feed costs and the impact they could have on dairy margins, dairy lending specialist Greg Steele said today.
Although milk prices are $3/cwt. above last year’s levels, corn futures have risen to $5.25/bu., said Steele, who’s with the Farm Credit bank known as AgStar Financial Services. Steele, who spoke with Dairy Today Wednesday at World Dairy Expo, has dairy clients nationwide, although most are concentrated in the Midwest.
“Many in the industry are trying to help producers adopt risk management to capture margins when they’re available,” he said. “From a lender’s perspective, winners and losers are determined by their ability to understand and adopt risk management.”
Rick management covers three major areas, Steele said:
1)      Price risk
2)      Input risk
3)      Interest rates
“Right now, interest rates are at historically low levels,” he said. “It’s a great opportunity for producers to lock in long-term rates.”
For producers, it’s key to learn and adopt a risk management program that’s customized to their own individual businesses, Steele said. He urged producers to:
·         Make use of milk marketing experts;
·         Make wise capital decisions. That usually means investing in cow comfort and areas that lead to more productivity. That could mean sand bedding or updating to new-model stalls.
·         Make sure they have a highly reliable accounting system because that’s the fundamental information they make decisions from.
You can reach Steele at Greg.Steele@AgStar.com.

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