What will you do when milk hits $20 again?

Hoard's Dairyman: 

What will you do when milk hits $20 again?

Date: 
Thu, 09/23/2010

The Class III roller-coaster cycle we’ve come to hate will eventually swing back to $20. Count on it. Every down has been followed by an up, so it’s important to plan for the inevitable recovery that’s coming; otherwise you may miss the opportunity it brings. Here are five possibilities to consider:

Pay back debt.
If 2009-10 has taught dairy producers anything, it’s that debt is a dirty four-letter word . . . a time bomb that, if it goes off, reduces management options, increases stress, handcuffs dairies and their lenders, and may be fatal to the business.

Expand.
For decades, high milk prices triggered an automatic reaction by some dairies: Add cows and expand. The power of leverage has made billions for producers, but a huge question complicates this approach now: Is the potential reward of more debt worth the risk?

Sell cows.
Milk price upturns have always brought out producers who are happy to cash in on rising cow values. Besides generating income, selling cows also reduces crowding and stress, which encourages remaining cows to perform better.

Diversify.
If you plan to continue dairying for many years, consider becoming more self sufficient. Dairies that bought land in 2004-05 to raise their own hay, corn, or other feeds were at least partially protected from soaring prices in 2008.

Retire.
The best time to sell out has always been when milk prices are high, because demand for cows and facilities goes up. Don’t let the euphoria of $20 make you forget about dinner table promises like, “If we manage to survive this and things get good again . . .”

The dairy industry has never seen more volatility than it has lately. Just as surely as another financial upturn is coming, another downturn will follow. Start preparing for both.