Divergence in Milk and Feed Prices
What’s Happened….
Milk futures have sustained a strong uptrend over the last several months, adding between $4 and $6 per cwt (hundredweight). During this same time, both corn and protein prices have eroded due to good crop prospects for the 2024 growing season. A challenging financial environment for dairy producers six months ago has turned positive. Yet, history has indicated that high dairy prices tend to last only several months. The spread between feed and dairy prices is comfortable for producers. Now, however, is not the time to rely on comfort as a good marketing strategy.
Why this is Important….
Support for milk prices comes from a smaller cow herd, in part due to higher feed prices from 2021 through 2023. Heifer retention in recent years has been on the low side, as milk prices struggled and beef prices have rallied. Heifer numbers are down, as producers turned to breeding cows to produce high-priced beef calves. The bottom line for the macro dairy picture is that cow supplies have tightened. Yet, high milk prices historically are not long-lasting, with most peaks ranging from 6 to 12 months.
Expect producers to grow the herd in the year ahead. All economic arrows point in that direction. Just as important, however, is that feed prices have declined to their lowest level in four years and offer an excellent long-term opportunity to secure needs. While it does not appear that there’s any immediate concern of tightening world grain supplies, bear in mind that supplies can be affected by weather each year. The world has become dependent on production outside of the Northern Hemisphere. The growing season for South America is only months away.
What can you do about it?
Consider locking in 6 to 12 months’ worth of corn and protein feed needs. If supplies do continue to prove burdensome in the year ahead and prices decline further, view this as an additional opportunity to add to purchases.
Dairy producers should take advantage of the recent price moves for both their end products and input needs. Frequently, high prices fade as demand declines and supplies increase. It usually takes longer for a market to recover from low prices than it does to fall from higher prices. Talk to your advisor about various strategies to manage risk and opportunities from recent prices movements that have moved in your favor. Now is not the time to get comfortable. Make sure you are playing to win.
Find out what works for you….
Work with a professional to find the strategy or strategies that are best suited for your operation. Communication is important. Ask critical questions and garner a full comprehension of consequences and potential rewards before executing. The idea is to make good decisions for the operation and less emotionally charged responses to market moves, which are always dynamic.
About the Author: With the wisdom of 30 years at Total Farm Marketing and a following across the Grain Belt, Bryan Doherty is deeply passionate about his clients, their success, and long-term, fruitful relationships. As a senior market advisor and vice president of brokerage solutions, Doherty lives and breathes farm marketing. He has an in-depth understanding of the tools and markets, listens, and communicates with intent and clarity to ensure clients are comfortable with the decisions.
The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.
Author
Bryan Doherty