Better Dairy Days Ahead
Sep 30, 2009
By Jim Dickrell
Dairy market analysts Scott Stewart and Mark Ludtke say better times are ahead for the dairy industry, with milk prices rising to $14.50 to $16.70 in the coming months. “Maybe even $17 to $18 isn’t out of the question, if only briefly,” says Stewart.
Both serve as market advisors with Stewart-Peterson, based in West Bend, Wis. They sat down with me yesterday morning as World Dairy Expo opened its first day of its 2009 run here in Madison.
The trick, they both say, is to not rush into pricing large volumes of your milk too soon. “The big part of our job with our clients is to convince them not to price too much milk right now,” says Ludtke.
Both Stewart and Ludtke understand producers are under tremendous pressure to reach above break-even milk prices by their lenders, their spouses or just for their own peace of mind. But locking in too much too soon now as futures prices creep to $13 or $14 might give you 50¢/cwt margins when you might give up $2 or $3/cwt by waiting.
A 50¢/cwt margin might help current cash flow. But $2 or $3 margins will go much further in replenishing cash reserves and liquidity positions.
Stewart acknowledges there is always downside price risk. But given all the fundamentals—fewer cows, a recovering economy, a stronger stock market—the odds of milk prices dropping $2/cwt are probably only 20%. The odds for adding $3/cwt to current futures prices are probably 70% to 80%.
“Milk got beat up so badly when all the markets crashed last winter, it’s almost a market leader of commodity price movement as we recover from the recession,” says Stewart.
The other good news is that feed prices are also declining rapidly. “We see corn coming down below $3, and soybeans and soybean meal could come down even more,” says Stewart.
Feed prices will likely bottom once combines start rolling across the Midwest. “Once we get to $3 on corn, I’d look for a bottom and price most of my needs,” he says. “There isn’t a lot of downside risk at that point, but you could see a later rally to $4.80/cwt—just on the dead-cat bounce.”
The other key, say both analysts, is to put together a structured marketing program to guide your decision making. Don’t structure your marketing program based on what you think the market will do, but be prepared with strategies that help you reach your goals.
The more strategic you make your marketing, the less emotional it will be, they say.
Good advice any time. Critical advice now as you try to recover ground lost over the past eight months.