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Profit Manager - An Integrated Approach to Managing the Risks that Impact Profit Margins

Bradley Hilty

Summary

Dairy farming involves multiple types of risk. Many programs have been designed to address managing specific types of risk. Faculty from the Pennsylvania State University developed and delivered three two-day workshops designed to teach producers to develop a more integrated approach to risk management. The Profit Manager workshops focused on managing the multiple risks that affect profit margins. The objectives of this project were to increase producers’ awareness of and develop their skills in the use of best management practices in managing price risk, production risk and labor risk.

The program consisted of a series of lectures and hands-on workshops, in which producers evaluated their ration and feeding program, calculated their cost of producing 100 pounds of milk and used the Profit Manager Planning and Budgeting Tool to develop an annual budget for their operation. A key feature of the program was the Penn State Price Risk Management Game which provided producers with a simulated experience in using multiple price risk management strategies. The game was developed in conjunction with The Downes-O’Neill brokerage firm of Chicago.

Thirty-two producers, industry professionals and students participated in the three workshops. Comparison of Pre-Test and Post-Test scores indicated participants increased their knowledge of the program topics by 34.5 percent. Results of a six month follow up survey indicated participants implemented a number of new strategies in their operations, including hiring a broker, evaluating their ration and implementing a price risk management strategy. Six of twelve respondents indicate they had increased their profit margins.

Details

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