Know Your Market
Feed and Cull Cow Prices Spell Opportunity Now
Aug 11, 2014
While negative scenarios color the early 2015 milk market, there are other places to look for revenue excitement.
By Warren Wagner, Stewart-Peterson
Dairy producers may be looking out to the early 2015 Class III Milk prices, which are down in the low $18 range and enjoying the current prices hovering around $21.00 per cwt. There isn’t a lot to get excited about right now in the milk market. In fact, early 2015 prices have many negative scenarios built into them, and so that is why they are trading significantly lower than today’s prices.
There are other places to look for excitement, however: the cull cattle market and the corn market.
The cull cattle market has been insanely high, and for many dairy producers, this spells great opportunity for an additional revenue stream. At the time of this writing, live cattle futures are at record highs, with August through December contracts trading as high as $160 per cwt. As of Aug. 5, live cattle contracts through April 2015 were trading at $156 per cwt. or higher. So, the pricing opportunity for cull cattle extends into the spring of 2015, whereas milk pricing opportunities do not.
On the feed side, note that corn prices are at relatively low levels. On Aug. 1, 2014, the corn price had declined 32% over a period of three months. That 32% selloff from the May 2014 high of $5.22-3/4 to the July 2014 low of $3.56-1/2 is right in line with other historical percentage moves that led to a long-term, bear-market bottom. So, from a cyclical perspective, there is a lot of evidence to suggest the corn price is very close to a cyclical bear market low.
Feed buyers need to realize that these low prices are not going to last forever. In fact, at past major lows, the corn price has rallied on average 18% within 60 days. Favorable feed prices can come and go fast, as historical statistics tell us. Remember this fact when all the headlines scream "record corn crop" this fall.
Chart 1 shows the forward curve for Class III Milk futures. It shows how the higher-priced opportunities for milk disappear quickly past the November contract. As a result, the opportunities to lock in near record high milk prices are now pretty limited. Producers will need to look to other markets like cull cows and feed to find opportunities to manage prices.
Chart 2 shows Live Cattle prices trading in record high territory out through spring of 2015.
Chart 3 shows the opportunity to secure corn at relatively low prices.
The message for business people who are using markets to protect a price advantage is to go where the opportunity is. Right now that opportunity is in cull cattle and in feed.
Warren Wagner is a dairy advisor with Stewart-Peterson Inc., a commodity price management firm based in West Bend, Wis. You may reach Warren at 800-334-9779, or email him at firstname.lastname@example.org.
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