Folks alot has happened since my last post on 7-30. Much of it needs a comment or two. Wheather I need to be commenting is debatable, I myself come down on each side of that argument.
I have been very busy getting ready for fair along with all the normal chores around here.
With all the Russia talk I started to look up some info on the russian dairy industry. Here is a link to a very modern farm with pics over there. I found it very interesting.
http://www.milkproduction.com/Visit_The_Dairies/europe/Barybino_Farm/default.htm
They are very modern with some technology and equipment I am enviuos of. Did you see who they sell thier milk too? I think they may have a very sustainable business model as they are closely linked with the direct seller to the consumer. I think our co-ops need to take a long hard look at getting rid of some middle men and dealing in a more direct position with processors.
Well feed prices are going thru the roof!
eurofarmer asked me How do we hedge against feed cost increases. (thanks for reading euro) Well in theory you can go on the board and buy protectioon. 6 weeks ago a $3.30 call would have been in the money and probably a wise move YOu could have purchased that fairly inexpensivley and now you would have some money in the hedge account. Problem with this stratagey was 6 weeks ago most dairyman (including me) would have had to convince mister banker that the corn market was going up and would you lend me the money to buy some protection on the board? Most bankers would have laughed you out of the office! Some CO-Ops are offering a margin program allowing you to lock in a milk price over feed costs. DFA does that I really don't know much about the specifics of it. I did buy some corn but that isn't going to last as long as I hoped so I still have exposure I wish I didn't have. So corn that was locked in at 105 /ton is now worth roughly 140/ton this is in about a six week period. I am convinced the real blood bath is about to begin. With this run up on feed costs just as most dairys start to think about corn silage purchases. Lets take a dairy that is running 2000 cows and lets say they need 1000 acres of corn for silage. In this scenario they buy all their corn silage out of the field from a "grower". At the second week of July cash corn here was 3$. Today it is about $3.60. Lets use an easy yield of 200 bu. the change in the price of that cornsilage pile is 120,000 dollars. Now the rumors I am hearing ( mind you some guys might be fibbin here) Some of these growers are wanting to lock up the price of cornsilage at $4 per bushel making that pile worth about 200,000 dollars more. So this total pile of cornsilage will be worth 800,000 dollars. .The gross on a dairy of that size using 15 dollar milk and 23000 lbs of annual milk is 6,900,000. So more than 10% of this poersons gross willl be used up in the cornsilage pile alone. And thats assuming the harvest costs will be included in the price. (often times it is not) Also I am assuming they have no interest costs in their. Folks this is huge. and I think many bankers will say you haven't been able to pay back last years feed bill/operating. Why would I loan you this years feed money when our hope for price is sideways at best? Good question to be asking.
So to answer Euro's question I think the best way to hedge your costs is to control the production of the grains. AS livestock producers we usually end up payin CBOT + in my area it is about 11 cents over.
So I am doing calculations using my feed costs to determine how much I can pay for rent on new crop ground.
Here is some rough figures. Nitrogen at 40 cents per unit/ 50dollars per acre.
Potash, dap( if I can't meet all needs with manure) 75 per acre.
Seed !00 dollars per acre
Chemicals 30 per acre
Fuel and misc. 35 per acre.
total 290 per acre.
Price I am using for grain is 4 dollars abushel cause that is what it will cost me to have it brought in.
That gives me on 200 bushel corn ground and 800 dollar an acre gross. That leaves me 510 dollars for Rent and machine hire or purchase. I know I won't have to give that much in rent so lets say I pay 300 I have lowered my purchase cost of grain by 1 dollar a bushel. Right? So maybe the greatest hedge will be the return of a traditional farm where the crops are grown and used on the same farm.
This doesn't mean a small farm will have any advantage over a large farm but it does mean that a farm with the land base will be able to control cost much easier than a farm who is dependant on the cash market. Cost is certainly part of the equation. ANd each farm must decide if they have the management ability to raise that corn crop. You say well if corn drops you might be in a worse situation. But isn't that what CRC insurance is for? Also I think that going forward you need to be more worried about run away production costs instead of shrinking production costs. I know there are many numbers that could be added in for a true cost picture But like I said it is just a rough idea. as to any family living number I have been working for free for so long I forgot I should be getting paid to farm!
Fonterra held it's monthly auction yesterday prices were lower by about 8.3%.
What does that mean that milk in NZ is worth less. It probably doesn't have any real bearing on our market other than the psychology of it. Remember they are trading in products which are not easily resold here in the states without more handling. Also as september approaches The NZ milk market will start to handle the fresh milk as production ramps up. Evcerybody is asking will the KIWI's be able to meet there projections of a 10-12% increaseyear over year? I ahve no idea but with world grain prices increasing you can bet that will cut into the potential for supplementing the grass based diets of those cattle.
In the end There is alot of descisions to be made on many farms the next six weeks.
I am going to be busy with fair the rest of the week. It was neat this morning my two older boys got up early to wash teh truck so it looked good going to the fair. While we were doing chores my da was joking with Jeff my oldest about the fair and being ready. One of the things I like so much about our farm is the generations working together. We laugh togehter, struggle together and help one another. In the end we are family that just happens to milk cows.
And one more point about markets butter closed up to 1.8425 on tuesday you can't beat that with a stick! Cheese production Was up again in June year over year.. I keep wondering why put Milk into cheese when there seems to be so much demand for butter? Be safe JR
