Analysts Agree, Lock in Feed Prices Now

November 15, 2017 04:08 PM

While milk prices continue to falter, producers have an opportunity to take advantage of current low feed prices and lock in potential profitability. Analysts agree the upside potential on grains is limited, but so is the possibility for markets to move appreciably lower.

Corn. “As markets unfold, producers should be cognizant of where markets are at,” says Mike North of Commodity Risk Management. “The bottom line is markets always fluctuate. So the last thing you want to do is get too comfortable and too relaxed with the price thinking that tomorrow it will be just as good as today because that's when things change.”

According to Bryan Doherty of Stewart Peterson, there’s a lot of carry in the corn market right now so there’s no reason to be super aggressive, but it makes sense to take advantage of current prices.

“The question that I always ask is, ‘Is there an appreciable downside potential for the corn market?’” he says. “For appreciable I mean something that would make me really regret it if I lock in feed now. No. So book the feed. Lock it in. Get 3, 6, 9, 12 months’ worth of feed on the books because we don't think there's any appreciable downside there.”

Soybeans.  Doherty says the same supply scenario is playing out in soybeans. While soybean harvest is nearly finished it’s been a late harvest and yields could suffer.

“I think it's highly likely the later planted crop in the central Midwest went dry late in the season and now there's some harvest issues,” North says, alluding to the potential for a smaller yield number than what USDA has estimated. “There are some issues with beans drying down too quick and then shattering. The weights were coming in at 10 or moisture content 10 percent. We figure on a 60 bushel yield.”

The analysts agree the next big mover of the market will be South America and where soybean yields end up there.

Alfalfa. Sometimes overlooked in market discussion, but certainly critical to dairy farms, alfalfa prices have the potential to be volatile over the next year.

“It doesn't take much dry weather next spring to get that portion of the feed ration to move up even more quickly than perhaps we see on the corn and meal side of things,” explains Scott Brown from the University of Missouri.  

The spread between the price of dairy quality alfalfa and poor quality alfalfa continues to widen. However, dairy quality alfalfa continues to get more expensive. According to the most recent Hay Market report from the UW Madison forage team, dairy quality alfalfa (with a RFV > 151) sold for as much as $260 per ton last week.

North says the worst thing a producer can do is get so comfortable that they do nothing only to have a change in policy or other major market factor cause prices to skyrocket.

“They you’re left buying more expensive feed,” he says. “The downside is very limited.”


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