WISCONSIN DELLS, Wis. – Risk plays a huge part in a dairy farming operation, so it is only natural that risk management must also play a role in the success of any dairy farm.
    That was the topic of a panel discussion held at the Professional Dairy Producers’ annual business conference March 17 at Kalahari Resort in Wisconsin Dells.
    The panel was moderated by Tim Swenson, a senior business consultant with Compeer Financial, and included Joe Fetzer of Fetzer Farms in Elmwood, Kendall Melichar of Melichar Broad Acres in Port Washington, and Patrick Maier of Maier Farms LLC in Waunakee. Each panelist shared how they approach risk management as it pertains to their family farms and what they have learned along the way.
    “I think one thing we can all agree on is the uncertainties of the markets are even greater than what they have been in the past,” Swenson said. “We are seeing some pretty substantial swings, not only in the milk side of the equation but also in the feed expenses and in the grain markets. There have been some pretty wild things going on in the last 60 days.”
    Fetzer handles the marketing, cropping and waste management responsibilities on his family’s 1,400-cow dairy. Fetzer joined the farm before marketing milk became a common practice but learned his way in the markets by selling corn.
    “I learned a lot of marketing with puts and calls on corn, and covering yourself with sales of corn,” Fetzer said. “I learned a lot over the years on that end of things. When you could start marketing milk, I just kind of took that over.”
    The importance in managing the risk for the Fetzers dates back to 2008 when the farm expanded to its current size.
    “In 2008, the markets were really good,” Fetzer said. “I was trusting the markets were high and would stay high. In 2009, everything tanked and it hurt. It took a toll. We weathered through that, and I began to really focus on making sure some (milk) is covered. I don’t worry about the peaks. I don’t care if I don’t see $24 milk. I just don’t want to see $13 milk anymore. I try to take out the bottoms.”
    Fetzer said the most important piece of risk management is knowing where the cost of production lies and putting a plan in place. He watches markets on a daily basis and keeps his brothers updated on what he is doing with the farm’s risk management strategies.
    Melichar’s family milks 1,600 cows. A CPA, Melichar joined the farm full time in 2014. She handles the bookkeeping responsibilities and became the lead in the risk management needs of the farm with the help of advisors.
    “I know what our cost of production is and what it is like trying to pay the bills when I don’t have enough milk check income, so it was very important to me to take the time and learn about (marketing and risk management),” Melichar said. “I hoped that it could better our farm. I found it to be challenging for me, which is what I needed career-wise, and I find it rewarding when I see it paying off.”
    Melichar said risk management is not so challenging that it cannot be done, but she recommends anyone planning to take on the task to find the right advisors to help make the learning process easier.
    “We have learned we need floors in place after growing to the level we are at,” Melichar said. “We don’t want to see missed opportunity in large amounts. We know we might miss some peaks, but overall, if we stay steady with our plan, we will be OK.”
    Melichar shared stories of the growing pains her farm has experienced that led her to actively participate in risk management.
    “Late in 2013, we put contracts into place for the whole year of 2014,” Melichar said. “They varied over the months, but for the average, we had contracts in place for $16.91 per hundredweight. At that time, it seemed like a good choice; you might remember 2014 Class III averaged $22.34. We didn’t lose money, but we missed opportunity of over $521,000. That was also the year we expanded, so that money could have been well used. At that point, we thought risk management was bad for us. We saw our missed opportunities, and we were done with it.”
    In 2015, the Melichars opted to sign up for the Margin Protection Program at $7.50 coverage on 75% of their production.
    “To put that in real numbers, we paid premiums in 2015 of $154,000, and we saw no payments,” Melichar said. “Milk price averaged $15.80 in 2015 and went down to $14.87 in 2016. In 2017, the bank said we needed to do risk management. We figured we had to look into what was going to help our farm survive.”
    Maier took on the risk management responsibilities on his family’s farm when he joined the operation as the third generation after graduating from college.
    “It was something new,” Maier said. “My uncle and my dad were going to allow me into the partnership, so we knew we needed to expand and grow. To help get us to our goals, we started to market milk. Being the new guy, I volunteered for the position. I wanted to prove that I had something to contribute to the dairy. I’m the lead on it, but the whole team has my back.”  
    Maier said knowing the cost of production is the basic building block to developing a risk management plan for your farm.
    “You need to know where you are at before you can protect it; otherwise, you are just out there speculating,” Maier said. “When we started, we were told not to get lost in the details, trying to get everything down to the penny. Just know your cost of production. You really need to know where you are at before you can lock in profitability.”
    Maier said risk management plays a key role in keeping their business moving forward.
    “When we sat down as a team and talked about it, we didn’t want our two-year goals to turn into five-year goals or five-year goals to become 10-year goals,” Maier said. “We know we are going to take out the valleys, but we are also going to take out some of the peaks, but it is just more consistent. If you are on a roller coaster, the only person who gets hurt is the one who jumps off. We figure if we can just ride it through, we are going to survive it.”