I don’t have the stomach for risk like some. Being the sixth generation, the thought of having the farm go down on my watch is always present in my mind.

I try to know the cost of production, whether it’s growing a ton of corn silage or producing 100 lb. of milk. Then we do our best to make sure we’re producing feed cheaper than we can buy it, and we don’t keep cows that aren’t paying their way.

Diversification is also one of my risk-management plans. Our digester enterprise has helped us cash-flow the dairy in very bad dairy years. It’s the same for the crop crew: We will go out and work for other dairies if we are done with our own work in chopping or manure handling.

I farm some heavy, wet land. It can be a challenge to break even by growing corn on it in some years, like this one, with an inch of rain every four to seven days. So we try to keep a six-month supply of corn silage and haylage. We also grow enough corn to put 100 to 300 acres in high-moisture shelled corn, so if we need to, we can chop all the corn and make sure we don’t buy corn silage.

We also farm more acres than a normal 1,100-cow dairy. This is helpful in nutrient management of the off-farm byproducts we bring into the digester. I also buy Crop Revenue Insurance for my entire corn and wheat crops. This is good for fields I can’t get planted or if we have Vomotoxin in the wheat or any other weather-related event that can keep the crop from reaching its full potential.

On the feed side, we also work with a consultant firm to watch markets and forward-contract feed when we think it is a good move.

On the milk side, I like to use the LGM (Livestock Gross Margin) insurance program, when available and subsidized. We also work with a consulting firm that helps us decide when it’s the right time to buy or sell futures.

I look at the money we spend as insurance so that we don’t go back to cash-flow troubles like we had in 2009. It is money out the door, but we should maintain at least break-even or better income and not go backwards. To do this, knowing your break-even milk price and your local basis on milk is important so you try to maintain a floor on the milk price above your mailbox price. I would rather spend $100,000 and break even than go backward $500,000. I have not sold milk directly on contract for a set price; I use the consultants and futures to manage this.

The milk plant we have invested in is also part of our risk-management plan. With having a plant only six miles from home, it will drop our hauling and production costs, making us more competitive—not to mention, when the plant starts, to return earnings to the owners, offering more diversification.

Source - http://www.agweb.com/