Multiple Ways to Manage Risk

November 17, 2010 09:40 AM
 

BradandMarkCrandall 125x125Brad and Mark Crandall

Battle Creek, Michigan
 

The Crandall brothers milk 270 cows on their fifth-generation farm.

  


The Crandall's October Prices

Milk
(3.5% bf, 3.1% prt) $17.08/cwt.

Cull cows
$55/cwt.

Cottonseed
(spot)
$256/ton

Soybean meal
(contracted) $280/ton

Renew meal
$229/ton

 

Managing risk has become more important than ever. There has never been more uncertainty or volatility.

One way many business owners, including ourselves, limit their risk is by slowing their growth goals. Another is by focusing on the core fundamentals of their business.

During the last two difficult years we have put many things on hold, but at the same time we’ve managed to greatly improve our herd’s reproductive performance, milk production and milk quality. Our foremost goal this year has been eliminating debt.

One strength of our farm in the current economic
climate is our ability to produce most of our own feeds and sell excess corn. In addition, we market wheat and soybean cash crops. In 2010, grain sales have been crucial to our recovery from 2009.

We feel we limit risk with our ability to produce
very high-quality forages. Poor feed quality can devastate the profitability of a dairy farm even more quickly than many other outside factors.

We have yet to contract any milk, because of our lack of expertise and because most others we know have lost money doing so. We do forward contract purchased feeds when there are good opportunities, but we all know this has been difficult in recent months.

Since the great collapse in 2009, fear has proven to be a great motivator. Even those of us not inclined to deliberately expose ourselves to significant risk in the past have openly wondered if dairying has a future for us. Being a little more conservative than we were just a few years ago goes a long way toward helping us sleep better at night.
 

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