Happy Cows and Nervous Nellies
Jul 04, 2011
Although positive news abounds, it may be prudent to lock in some of these better prices on at least a portion of your production. The good times of early summer might not last.
In June, a bevy of USDA reports and news out of Congress should put smiles on the faces of dairy producers nationwide.
• The U.S. All-Milk price for June came in at $21 per cwt., 40¢ higher than May and up $4.60 from a year ago. This is the highest All-Milk price since the second half of 2007.
• Planted corn acres came in at 92.3 million acres, up 5% from 2010, and the second highest since World War II.
• Corn stocks were reported at 3.75 billion bushels, down 15% from a year ago. But in the whacky world of the grain trade, this was actually received as bearish because the trade expected even lower levels. The result: Corn futures initially dipped 30¢ to 70¢ per bushel last Thursday when the grain stocks report was released.
• The U.S. Senate voted 73-27 to eliminate the 45¢ per-gallon ethanol credit. Though part of a larger bill that was not certain to pass, it appears the ethanol credit is destined for the dust bin of dubious subsidies as Congress and President Obama wrangle to cut the federal deficit.
All this good news could make a dairy producer downright giddy. But, per usual, there are a few flies in the vanilla milk shake. Soybean acres are down 3% from 2010, even though some non-traditional soybean states such as New York and North Dakota report record acreages. (Heck, even a 27-hole golf course a few miles west of my office was torn up and planted to soybeans this spring.)
Alfalfa acres are also down 3%. West Coast producers continue to pay well over $200 per ton for alfalfa. And while cotton acres are up by 25%, drought from Georgia west through New Mexico scorched the crop and hopes for lower prices.
And then there’s the weather. Crop analysts on www.agweb.com repeatedly warn that weather through the rest of the growing season will continue to drive markets. Late planting across the Corn Belt means farmers will need a dry and late fall to get the crop out.
For dairy producers, the key message from our own analysts and market bloggers is to hedge your bets. Mike Hogan, with Stewart-Peterson, reported last week on www.agday.com that milk prices are at the top of a three-year cycle. While he’s not predicting a crash like we saw in 2009, he is warning that price declines could be in the offing as we roll through the rest of the year and into 2012.
Right now, there may be some pricing opportunities. Good milk prices today make for some fairly strong futures prices through the rest of the year.
If your balance sheet can’t withstand a downturn in milk prices, it may be prudent to lock in some of these better prices now on at least a portion of your production—through options, fence strategies, even booking with your milk co-op.
Locking down feed prices is more problematic. But if you can protect some level of income-over-feed-cost margin—it may be the prudent thing to do. The good times of early summer might not last.