CIH’s Vice President of Business Development, Brendan Dorais (BD) sat down for a conversation with Dairy Margin Consultant, Will DeJong (WD) to discuss ways dairymen might think more effectively about their approach to risk management.
BD: What are some of the misconceptions out there that dairymen have about the margin approach?
WD: One popular misconception is that you have to time markets just right in order to have success. The margin approach is a long term process. We’re looking to capture as much upside as possible while diminishing the downside as much as possible. As the market moves from highs to lows or the other way around, it’s a constant process of repositioning yourself in order to capitalize on market movement. Since no one ever really knows which way markets are heading, we believe that it’s always good to have a disicplined risk management policy in place.
Another popular misconception is that you need to have a massive cash flow available at all times. This is simply not true. There are a lot of low cost tools available to producers to effectively manage their margins. These range from non-marginable exchange positions to physical contracts through the processor or grain elevator. Another one is that producers should not use the exchange because they do not get paid Chicago prices. Even if you do not get paid exactly the Chicago Mercantile Exchange’s (CME) prices, chances are that your mailbox price has a very strong correlation to either the Class III or IV market. It’s our job here to find which exchange traded product is the best fit for your pay prices and to understand the advantages and disadvantages to using these markets and communicate those to the producer.
BD: When is the best time to begin executing the dairy margin management approach?
WD: More often than not, we see producers begin talking to us when milk prices are in the tank and there’s not much margin available on the farm level. There’s no one best time to be looking at protecting margins, but milk prices do follow a cyclical flow just like any other market and often the best opportunities are available after producers have gone through an extended period of positive margins.
BD: Did growing up on a dairy influence your work as an AE?
WD: I would say so. I believe this helps me identify more directly with producers and many of the struggles that they see on a day-to-day basis on the operation. I know dairymen are extremely busy and always putting out fires so there’s definitely the need to be flexible with my schedule.
Interested in discussing how Dairy Margin Management can help you make more effective decisions for your dairy? Contact CIH at (866) 299-9333.