Dairy Excel: Who knows what milk prices will do!

Recently, I have been asked many times what I think 2012 will be bringing us.

I think that too many people think that I know much more than what I actually do. I would prefer to forecast the weather for the next three months on an hourly basis than try to forecast milk and feed prices for the next 12 months.

Milk price forecast

To get an accurate forecast, one would have to know what will happen with the European debt crisis, what the weather will be in many regions of the world, when will the U.S. financial recovery finally translate into meaningful jobs, what will be China’s fiscal policy, and whether Punxsutawney Phil will see his shadow…

In short, one would have to know a great many things that I simply do not know. But neither does Jim, John, Jack, Johnny and whoever happens to be the economist of the hour or a commodity broker.

USDA track record

One would think that the brains working for the USDA could at least hit the target once in a while. Sorry to tell you this, but the USDA December forecast for the incoming year has been so bad over the last 10 years that it is very tempting to advise people to take a position opposite to the forecast.

For example, last December the USDA issued its Class III forecast for 2011: $14.45 to $15.25. Talk about missing the mark!

So I won’t repeat what the USDA forecast for 2012 is in this column because it would be as relevant to financial planning for your farm as a lesson in crocheting.

Feed price forecast

Our inability to forecast prices extends to feeds. I just don’t know what the corn market will do in June, August or October of next year.

I don’t know what size of crops we will have. I don’t know whether the Chinese will be importing more grains. I just don’t know too many things.

But at least I am honest about it.

What you can do

First, enjoy the holidays. You worked hard all year. This is a time to be thankful for what we have and enjoy some time with our family.

Second, on Jan. 1 (or maybe Jan. 2 if you happen to celebrate the new year a little too hard), take a full inventory of all assets on your farm.

How much silage do you have in your silos? How much hay do you have stored in the barn? How much corn is in the bin? This information is very important to conduct a financial analysis of your farm. Yet it is often lacking.

Lastly, set aside sufficient time to draw a financial plan for your farm for 2012 and beyond. Ensure that your plan can make it through a bad year — say $13/cwt milk or $8/bushel corn.

We don’t wish to see these prices, but a plan should be sufficiently resilient to allow survival during bad times.

You should also spend time to plan what you would do if the year, or part of the year, turns out better than expected. What investments could you make to make the farm more efficient, competitive, or even simply more enjoyable to work on.