Why You Should Believe in Forecasting Dairy Markets

“It’s tough to make predictions, especially about the future.” --Yogi Berra.
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Analysts and economists sit down every month to do the impossible: Predict the future; release a forecast. We crunch numbers and develop models. We spend countless hours thinking about each step along the supply and demand chain, trying to predict. Some of us lose sleep at night. In my case, it ends up in my dreams as my brain tries to process all the “maybe’s” and “could-be’s.” And even after all this work, focus and attention to detail, we are wrong. Always.
The forecast will have revisions next month. How big of revisions? Depends on the forecaster. The world will have changed and we will have to change our opinions with it.
So why should you, dairy farmer, care about forecasting?
“A man who does not plan long ahead will find trouble at his door.” –Confucius
“Every battle is won before it’s ever fought.” –Sun Tzu
Because there is value in (1) looking down the pipeline and (2) planning for possible futures.
Looking down the pipeline
This year provides a case in point. As humans we have a tendency to think that the future will look a lot like the present. This is why while experiencing highs during 2014, dairy farmers were reluctant to hedge $18.00 per cwt. Class III milk at the CME. Dairy farmers told us, “. . . but we’re receiving $20.00 per cwt.”
The prudent dairy farmer, however, listened to expectations and then weighed the impact of those expectations for their individual operations. As an example, at that time I had a prudent dairy farmer tell me, “I’ll take my chances that prices improve, but I will buy puts just in case they don’t.”
 Planning for possible futures
In my last article, I discussed the five-factors that we were (and still are) watching: drought in New Zealand, the Russian ban on dairy imports, USA exports, European milk production, China and USA demand.
As an analyst, I cannot predict how these factors will play out. For example, I cannot predict weather in New Zealand (turns out, neither can the meteorologists). As a dairy farmer, you’re in the same boat. You can’t predict the weather either.  But we both can understand the risk and how it impacts markets.
Second case in point: The increase in New Zealand dairy prices at the GlobalDairyTrade auction was caused by drought across the Island. It was not caused by a sudden increase in dairy demand. As a dairy farmer, knowing this, you can predict the impact of what I call “possible futures”: (1) Drought continues across the Island—prices continue to rise; (2) Rain comes to the Island and caps the price impact of the drought.  How does either event affect your operation’s bottom line?  Are you ready for both?
To emphasize: Forecasting is not about being right. It’s about being prepared and understanding what financial situations you may have to face.
“We shape our tools, and thereafter, our tools shape us.” –Marshall McLuhan
The right tools and strategies will continue to evolve just as the situation in the market evolves every day. I encourage you to take the reins and to learn more about the factors affecting your bottom line, to understand the outlook and to prepare for the “maybe’s” and “could-be’s” facing your operation.

Source: AgWeb

Mirá También

Así lo expresó Domingo Possetto, secretario de la seccional Rafaela, quien además, afirmó que a los productores «habitualmente los ignoran los gobiernos». Además, reconoció la labor de los empresarios de las firmas locales y aseguró que están «esperanzados» con la negociación entre SanCor y Adecoagro.

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