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Today's Global Market Spells Challenges...and Opportunities

March 16, 2016

Contact: Shelly Mayer
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Today's Global Market Spells Challenges...and Opportunities
Despite challenging times in agriculture right now, farmers do have tools at their disposal to help weather the storms created by low milk and commodity prices. Dr. Allan Gray is an agricultural economics professor at Purdue University, and also serves as director of the Center for Food and Agricultural Business. He provided attendees at the Professional Dairy Producers of Wisconsin annual business conference with some key management strategies to help dairy businesses navigate the current economic situation and position themselves to be profitable.

“If a positive margin is there, be sure to lock in on some production,” Dr. Gray mentioned as one example. “Dairy producers should be taking advantage of the Margin Protection Program if possible. Giving yourself an opportunity to guarantee some type of profit is better than risking everything and making nothing at all.”

For those who grow crops (such as corn, soybeans or grains), he stressed the importance of buying crop insurance.
“This will help protect your yield, even if the coverage is a little on the expensive side,” he said. “You insure your buildings, your equipment and even your life. Why wouldn't you insure the very thing you rely on most for your livelihood?”

He also advised dairy farm managers to avoid making marketing decisions based on last year's results. And PDPW members were encouraged to work with their bankers to consider options for locking in their interest rates to fixed terms.

Lastly, Dr. Gray said all business owners must watch that bottom line closely when their cash flow is tight.
“What are you doing to push down your cost of production?” he asked. “It is easy to lose cost-discipline in high profit environments. But now that things are tight, you need to make sound capital investment decisions and try to increase efficiency, along with production.”

Fortunately, Gray says the long-term demand for food, feed, fiber and energy appears to be bullish. He admits the productivity challenge is significant, but we have the technologies to meet the demand.

“While long-term drivers are encouraging, the path to the future will be volatile,” he likes to say.
Gray urged producers to watch for key indicators on the global level, such as growth in developing countries, expansion in crop acreage, oil prices, and exchange rates. Closer to home, he said we should keep an eye on cost of farm production, regulatory environment, crop insurance subsidies, interest rates and credit quality.