Protecting Our Margins

November 28, 2011 04:49 AM

Gorrell   Patron, Patrona,Jessie 12 14 10Glenn Gorrell

East Smithfield, Pa.
Gorrell Dairy LLC is home to 670 cows and 610 heifers.



*Extended comments are highlighted in blue.

Since 2009, risk management has become more important on our farm and for many of my neighbors than ever before. It is so important to try to guarantee your operation a good margin.
We have been using milk contracts through our co-op on and off for 13 years now. As most of you know, on and off isn’t the best plan, especially when off was 2009 and on was 2011.
Since 2009, we have tried to implement a plan that will protect a decent margin for us. We do grow all our forages and corn grain, but we need to lock in our protein sources. So far this fall, I have locked in half my protein and a good basis on the rest. I have also locked in a third of our milk through next June with Class III contracts with our co-op.
We have used LGM-Dairy this past year, locking in
a $12.00 margin for $0.28/cwt. I wish I had done that
before, when the milk price wasn’t even $12. As I write this, I hope my agent got us in for the next 10 months of margin protection at $11.50 for $0.24/cwt. It looked like the LGM insurance funding was going to go quickly, probably in the first sign-up window, which was last night. We were set to cover 50% of our milk.
Our co-op representative has helped us with our financial records to figure out our break-even, our basis and the historic prices that have occurred in the last 10 years. This gives us a better idea of what prices we are looking for and what our trigger should be. Then it is up to us to get it done. I will say there are many times when I am sending a contract through the fax when my wife will ask if I really know what I am doing. Time will tell.
Another risk management tool is crop insurance. We use the revenue protection plan, called "crop revenue coverage" before this year. This has enabled us to cover $580 corn for $15.58 per acre.
I hope we have done enough to protect our operation in the case of drought, higher feed costs and also a drop in milk prices. Yes, we won’t hit the highs in milk prices or maybe the lows in commodity prices, but we have worked to get a margin that we can live with.



Gorrell's November Prices

Milk (3.2% bf, 3.1% prt) $22.35/cwt.
Cull cows $1.25/lb. to
$1.27/lb. (dressed)
Springing heifers $1,200/head to
Alfalfa hay (milk cow) $350/ton
Cottonseed $310/ton
Cornmeal $310/ton
Canola $259/ton


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