Managing risk on a 1,300 head US dairy farm – ‘It’s just another tool in the tool box’
Risk management is just another tool in any dairy farmers tool box, according to US dairy farmer Joe Thome.
Thome spoke about the risk management steps undertaken on his 1,300 dairy farm in Wisconsin at the Joint IFA and FCStone conference on dairy volatility in Laois on Wednesday.
The US-based dairy farmer said that risk management is a business decision that can help dairy farmers, but if farmers are not familiar with it could have a negative impact on their business.
Thome also highlighted the expansion of the families dairy farm, which has grown from 26 cows in 1963 to 1,300 cows this year.
He said that he took over the running of the farm from his parents in the 1980’s, but really only started to focus on expansion in 2002. He now farms over 2,000ac and employs 26 staff.
The Wisconsin farmer said that he also started to focus on risk management in 2002 and, in particular, the futures market, as he wanted to protect the future income of the farm.
Selling on the futures market involves selling a proportion of the future milk produced on the farm at a fixed price.
It was a big learning curve and you have to do a lot of reading, it is mind boggling, It was for me at the beginning too.
Thome sells anywhere between 10-90% of the milk produced on the farm through the futures market on an annual basis and he said in the beginning, it was quite stressful.
“You need to have a good relationship with your broker, you need someone who will be patient with you starting,” he said.
“The futures and options have worked well for me,” he said.
Thome also said that selling product on the futures market was a help to his business during the dairy price downturn of 2009.
There was some questions being asked in 2008, maybe we should get out of this. There was suggestions that this wasn’t going so well.
“Then 2009 came along and I can say now it was a smart decision,” he said.
He also said that he has got a lot better at preparing budgets on the farm.
“The budgets get done in October and it is very interesting. I will have milk marketed already and you can see what the feed prices and yields are across the US.
“It is really nice to look at a budget and to see how things will flow.
“This is how the risk management has helped us out quite a bit with growing the dairy and also budgeting and knowing what your next year will hold,” he said.
Thome said that the main reason for forward selling is to protect the margin.
“This may seem a little bit counter productive, but there have been times when I have marketed milk when I didn’t always get protect a positive margin.
“There are times when you would sell a little bit of milk as you can see in the crystal ball that the bottom is falling out of price,” he said.