History has shown that when feed prices are highest and the feed outlook is most uncertain, we also see some of the best selling opportunities in the milk market.
The last few weeks have been offering opportunities to price milk for 2013. Did you take advantage of the opportunity and make some incremental sales? As I visit with producers from around the country, after we’re done lamenting about the 2012 crop and feed prices, this is the question I ask.
Here is a common response I get from those who are not hedging milk: “I’m not seeing the margin I want, so I’m not going to make a sale yet.â€
Indeed, in a high-feed-price environment, as you look out beyond the nearby months, there may be no attractive margin to be had. My fear is that the dairy industry has placed such an emphasis on protecting margins that we are failing to recognize the opportunities that each market offers, independent of one another.
Allow me to make the case for making some incremental milk sales now, and then managing those positions in an active, ongoing way into 2013.
On Sept. 4, March 2013 Class III milk closed at $19.20 per cwt., and March corn futures closed at $7.95 per bu. Even at these prices, many producers are reluctant to hedge milk because they believe that corn will push higher and subsequently push milk prices higher. The problem is that, even if corn prices do head higher and do result in higher milk prices, there is no guarantee that the milk price will increase enough to improve margin, or even maintain what-if-any margin a producer may see today. And so, at what price level do you jump in and get started?
What we do know for sure is that milk at $19.20 is relatively high historically, and we should see this as an opportunity to price some of our production. History has shown that when feed prices are the highest and the feed outlook is most uncertain, we also see some of the best selling opportunities in the milk market.
Once we establish a position, we can then, with the variety of hedging tools available, actively manage that milk position and either continue to protect it or take advantage of even higher prices if they occur. It’s not a “price it and forget it†proposition. It’s like most other things on the dairy – intensively managed.
It’s like this: You put corn silage into the bunker once a year. You test it and calculate your ration and plan for other supplemental feed purchases. But you don’t test it once and forget it. You continue to monitor it, test it, and make sure you are using that corn silage to the best of its ability. That’s because the nutritional profile of that silage is constantly changing, and you can’t feed it for the rest of the year the same way you did on the day you put it in the bunker.
So it is with managing your market positions. You have to start somewhere, and almost never is it a “price-it-and-forget-it†proposition. The market is offering bright spots with opportunities to price milk.
If I walk away from it, I will never have any opportunity to widen my margin. If I actively manage it, I can look for opportunities on both the milk and the feed side, and make decisions that can effectively widen my margin over time.
If you are attending the upcoming World Dairy Expo in Madison, Wis., I look forward to discussing your 2013 marketing choices and opportunities. Please look us up in the Exhibit Hall and come have one of the famous Badger Dairy Club grilled cheese sandwiches on us.
Mark Ludtke consults with dairy producers nationwide concerning their choices for risk and opportunity management. He can be reached by calling 855.334.0700 or at mludtke@stewart-peterson.com.
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Source: AGWeb
