Keys to surviving the the downturn in milk prices

August 11, 2009|By JEFF SEMLER

That old saying, "What goes up must come down," has been proven to be true yet again.

After two years of record high milk prices, the inevitable drop came. Unfortunately, it has stayed around longer than expected and although higher prices are coming, that horizon seems to keep moving farther away.

The fall is the largest drop in comparison to a rolling five-year average in modern history.

What makes the situation more dramatic is that this drop in milk price is accompanied by significantly higher production costs than during the last downturn in milk prices (2006) and some of the tightest credit markets in recent memory.

So yes, 2009 has been a challenging year for dairy producers.

"Producers should not fixate on this negative outlook," said Brad Hilty, business and information management specialist with Penn State's Dairy Alliance Program.


"Doing so will rob you of the energy and enthusiasm you will need to make the sound management decisions necessary to survive this challenge. Tackle the challenge head- on, because those that do survive will be best positioned to capitalize on the opportunities that increasing milk prices will bring."

And yes, milk prices will increase again. According to Hilty, the rolling five-year average milk price has been increasing about 17 cents per year since 1990, even with 2009 prices included.

"Focusing your efforts on the factors you can control will help minimize losses and ensure that you will survive," Hilty said.

Hilty will present his "Ten Keys to Surviving the Downturn in Milk Prices" at a meeting sponsored by the University of Maryland Extension at the Washington County Extension Office, 7303 Sharpsburg Pike, Boonsboro, on Friday, Aug. 21. The meeting will be held from 10 a.m. to noon, with refreshments and light snacks provided.

"Planning and communication are to two keys that producers must focus on during this critical period," Hilty said.

"Every producer should develop a monthly cash flow budget to see how much money is flowing out of the business. Then strategies can be developed and implemented to address the problem."

And planning is not a once and done task.

"It is a dynamic process, especially in this environment," Hilty said. "We have had to make changes to the cash flow plans of many producers during the past several months as the horizon of higher prices has continued to shift."

Communicating with family members, employees, key advisers, (especially your lenders) and vendors is also important.

"You don't want to wait until you have no options to approach your lender to discuss the situation," Hilty said. "Lenders hate surprises."

And what if you determine that exiting the dairy business is your only option? Hilty reminds producers that "admitting defeat does not equal failure." Producers that find themselves in such a situation should rely on their support system to get them through a stressful time.

"Discuss your situation with people you trust to help you figure out what is best for you, your family and the animals you care for," Hilty said.

Prior to joining Penn State, he helped a number of dairy producers develop exit plans, as a private consultant.

"As stressful as the process was for these folks, they all made it through and life went on," Hilty said. "And I have never had any of them tell me later that they regretted their decision to exit the dairy business."

Hilty's presentation will also include steps producers can take if they find themselves facing the hard decision of exiting the business.

To register, contact the Extension office at 301-791-1304 or e-mail by Aug. 18 to reserve your seat. While there is no fee, space is limited.

Jeff Semler is an Extension educator, specializing in agriculture and natural resources, for the University of Maryland Cooperative Extension. He is based in Washington County. He can be reached weekdays by telephone at 301-791-1404, ext. 25, or by e-mail at

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