Managing capital and risk in today’s environment
Our first pre-conference workshop, led by Michael Reecy, vice president of commercial dairy lending at Farm Credit Services of America; Ed Gallagher, president of DFA Risk Management; and Tom McCormick, vice president of DFA Risk Management, provided a guided conversation about the benefit of risk management on our members’ operations, the changing dairy landscape from the perspective of lenders and some emerging trends changing the way our members farm.
Kicking off the workshop, Michael outlined four disruptors contributing to current dairy market conditions: convergence of milk prices, industry consolidation, alternative income sources and technology advances.
On the geographic convergence of milk prices, Michael explained how, in many regions, there is an abundance of milk supply relative to the capacity farms can produce. He also explained how industry consolidation has led to a decrease in the cost of milk production.
Another disruptor discussed was the growing commoditization of alternative income sources. From crossbreeding cows with beef genetics to utilizing sexed semen to increase replacement heifers, dairy farmers have opportunities to increase their bottom line, Michael explained.
On-farm technology completed Michael’s four key marketplace disruptors. Of current technology trends, the use of robotic milkers and the incorporation of robotics in rotary parlors was discussed. Michael said robotics in rotary parlors are enabling farms to produce more milk in less time than ever before.
To close his presentation, Michael provided a look at how disruptors like these are viewed from the perspective of a lender. He emphasized that there are key factors lenders see on paper, and others they notice when talking with farmers.
One thing Michael told members he looks for is whether or not “the cost of your production is relative to your peers and the dairy industry. That’s a benchmark.”
Joining Michael on stage for a panel discussion was Rick Russell, president of DFA Financing; Paul Windemuller, a DFA member from Coopersville, Mich.; and Alan Gerratt, a DFA member from Burley, Idaho. Their discussion was moderated by Tom McCormick, vice president of DFA Risk Management.
Building on Michael’s presentation about market disruptors, Paul, a first-generation farmer, discussed how important robotics have been to his operation, which he started in 2014 with 30 milk cows.
“When I got started, I scrounged up metal to build my parlor. Then, I later saw the opportunity to do robotics. It only took about 10 months to see the full effect of our robots. That technology has definitely added a lot of value to our farm,” Paul said.
Panel participants also discussed the benefit risk management has had on their operation, as well as the reason they find it important as part of their business model. When discussing the importance of risk management, Alan talked about how many farmers fear they are leaving money on the table.
“To be successful in risk management, you need to take some of the emotion out of it. It’s a business decision,” Alan said. “You want to leave money on the table. It’s like insurance. At the end of the year, you don’t look back and wish you would’ve totaled your truck, so you could claim your money.”
Filled with helpful information, as well as perspective from members and lenders, this workshop provided insight into the current dairy landscape and ways to minimize risk on member farms.