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0609 PD: Capture dairy’s opportunities

Published on 09 April 2009

FROM dairyeditor’s BLOG • April 13, 2009

‘Told you so’

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These are the times we were telling our clients to prepare for. They have protected the price of milk. For the moment, we recommend doing nothing with the first half of the year ... sub-$12 per hundredweight prices. However, for the last half of the year, we like buying put options. Do not contract any milk without buying calls. This would be a distant second choice to address current market conditions.

Mike North
First Capitol Ag

Un-American?
1. Lots of interest in a quota system.

2. Base price and over base price (probably some sort of quota again)

3. CWT needs to consider new options (maybe a set price versus bid and maybe let the banks submit desperate loan cases)

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4. CWT should raise contribution level especially during good times to have adequate resources saved for these times.

I know some of these may seem grasping or un-American in our free enterprise and democratic society that we fight for and love, but desperate times make us lash out to find someone or something to take the responsibility.

Lindsey Dimond
DFA

Get organized for fall

The current discussion in the Southeast is planning to satisfactorily cash flow for summer. We hope for better opportunities in the fall for those that are able to be prepared to ‘cash in.’ In other words, hold on tight in the short run, get organized for later.

We have made an issue of determining whether operating or fixed costs are principle constraints to greater profitability.

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In many cases, it is purchased feed costs that are constraining, so producers were challenged to seek options and alternatives. Leave no stone unturned to improve feed cost per hundredweight. If operating costs cannot be controlled, the producers need to seek options such as grazing, selling cows and other more extreme options.

Once operating costs are budgeted to a reasonable level, we look at fixed costs. Increased volume will decrease fixed costs per hundredweight. We look first at adding volume with the current herd. Cows are available at much more reasonable prices, but the producer in most cases will need to have the cash available to take advantage. Whether cows should be added now or wait until fall, depends on the operating costs. Producers are cautioned that increasing principal and interest obligations now might worsen rather than help their cash flow.

In the Southeast, producers that grow their own forage have an advantage over those that do not. Producers must keep focus on the cowside stuff. In order to be prepared for better times in the fall, cows must be healthy and pregnant. It is no time to falter in our herdsman’s role.

Russ Giesy
Diamond Rule Dairy Management Consulting Service

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