Commodity volatility runs amok

January 7, 2009 06:00 PM
            The Class III milk price has ranged from a low of $10.38 to $21.38 over the past three years, a 97% shift from high to low.
            But other commodities have seen even greater swings during the period, says Katherine Rossini, director of risk management and analysis with Dairylea Cooperative in Syracuse, N.Y. So dairy producers are not alone in facing price and input cost volatility.
            Rossini made her comments during a conference call this morning hosted by Pennsylvania's Center for Dairy Excellence.
            Corn prices have ranged from $1.94 to $6.57, a 238% shift, over the past three years. Soybeans have ranged 181%, and crude oil 193% over the period.
            Within the next month, milk prices could see a new low, and new high for volatility, she says. "These prices are moving; they're not going to stop moving,” says Rossini.
            Rossini went on to outline a half-dozen risk management tools Dairylea and Dairy Farmers of America (DFA) offer their members. These programs range from minimum price contracts to fence contracts to a price stabilizer program. Most, but not all, come with premiums that are determined by the level of price or margin protection desired.
            In 2008, 5 ½% to 6% of the co-ops' milk intake was covered by some form of risk management. That's up from 2% to 3% just two to three years ago.
            Rossini says DFA has about 4% to 5% of its members' milk covered for 2009. Dairylea has about 3% covered. "Milk prices looked good last year, but input prices were out of control,” she says. "So many members were reluctant to lock in milk prices without covering inputs.”
            Dairylea, through its Agri Services Agency, is also able to offer Livestock Gross Margin-Dairy insurance. LGM-Dairy offers gross margin protection between milk and feed costs.  

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