The dairy sector needs to equip itself to be more sustainable in the face of volatile markets and prolonged downturns, IFA dairy chairman Sean O’Leary has told an industry conference, writes Joe Dermody.
IFA is hosting a discussion in Co Laois today on ‘Making Risk Management Work for Farmers’ to help Irish dairy farmers consider new hedging mechanisms to minimise the threats of future global milk price volatility.
The morning session featured inputs on global commodities from specialist brokers FCStone, as well as 1,300-cow US dairy farmer Joe Thorne on how his 18 years of working with futures and options has delivered near parity in terms of income, plus the stability to plan his business.
“Risk management is just another tool in the toolbox,” said Mr Thorne. “It is a big learning curve, but I managed to teach myself a lot of it through reading magazines, and my brokers at FCStone have been very helpful.”
In 1998, Mr Thorne’s family farm, Red Ridge Dairy in Wisconsin, had around 400 dairy cows. Now managing a 1,300-cow herd with significantly increased average weights, his expansion coincided with his move into risk management via futures and options. Red Ridge remains a family farm.
IFA’s Sean O’Leary outlined how, over the last five years, first Glanbia, then, with the help of Ornua, more co-ops have offered farmers fixed price contracts, which allow some farmers to receive in excess of 30c/l for some of their milk.
Mr O’Leary said the contracts have helped farmers understand the concept of hedging – foregoing the highest prices, but avoiding the lowest. But fixed price contracts are difficult to deliver depending on market prices, he said.
“Fixed price contracts must not be the only option available from industry: other forms of hedging or margin insurance instruments need to be developed, by industry and in conjunction with government and the EU,” said Mr O’Leary.
“IFA will continue to work hard challenging banks to be more proactive and price competitive with both cash flow and investment financing. They must learn from the Glanbia Milk-Flex package and offer well priced financial packages which meet farmers’ needs and respond automatically to price variations.”