Hedge Early, Hedge Always

August 29, 2012 04:40 AM

Dairy farmers have learned the hard way that once poor or negative income over feed cost margins occur, nearby futures contracts offer little help.

The key is to hedge early and always, according to new research released today by dairy farm management specialists the University of Minnesota, Ohio State and the University of Wisconsin.

By using this strategy, farms that rely on home-grown feed could have eliminated 93% of the margin shortfall in 2009, and farms that purchase all of their feed could have eliminated nearly 50% of their shortfall, says Marin Bozic, with the University of Minnesota.

“Our basic finding is that farmers can do really well to protect their income over feed cost margins, but only if they hedge regularly and hedge distant months,” says Bozic. The study found that insuring 1/3 of expected milk marketings and associated feed costs using Livestock Gross Margin Insurance for the 8th, 9th and 10th insurable month worked best.

More detail on the study can be found here.

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