Go Into Dairy Loss Mitigation Mode NOW
March 25, 2020
Marin Bozic, a University of Minnesota dairy economist is urging dairy farmers to go into loss mitigation mode immediately and lock in at least some price protection through the second quarter of 2021 because of the uncertain market impacts of the COVID-19 pandemic.
Using Dairy Revenue Protection (RP) insurance as his example, Bozic normally urges dairy farmers look at the two most current calendar quarters for loss protection when there are price declines. RP provides five quarters of pricing options, and he recommends using the fourth and fifth quarters as break-even price protectors. But due to the uncertainty in markets, he is urging dairy farmers to lock in prices now.
“We are in unprecedented times,” he says. “April [debate whether to lift the lockdown vs. rising number of dead from COVID-19] will be like you have never seen before, and it is likely to be a harrowing month for all of us.
“Even if prices far out don’t cover your break-even, it is better to take them,” he says. Futures prices are still well above $10, and though Bozic says $10 is unlikely, it could happen.
Bozic spoke in a one and half hour webinar this noon hosted by the Minnesota Milk Producers Association and I-29 Moo U Extension. More than 350 people attended the on-line webinar.
Poll questions for attendees were sprinkled throughout the webinar. Note: None of the poll responses are projectable, but give some indication of producer sentiment.
Sixty-five percent of those polled said milk price decline is their biggest fear during the COVID-10 outbreak. Another 19 percent fear their milk plant going down, and 10 percent fear they will lose employees.
Nineteen percent of poll responders indicated they have already been told to cut milk production by their milk plants. The other 81% have note.
In another question, 25 percent of those responding say they cannot sustain lower Class III/IV prices for even a month. A quarter of respondents say they can sustain 1 to 2 months of lower prices, 30% say they can sustain lower prices for 3 to 4 months, and 20 percent say they can sustain lower prices for five months or more.
Bozic noted that if you are forced to dump milk because of plant disruption, measure all milk and report it to your creamery. Also insist that all dumped milk be included on your milk check because it will serve as a record of monthly total production. That documentation might become important in the future as you claim RP insurance or disaster indemnities.
Plus, the United States Department of Agriculture’s National Agricultural Statistics Service will use that data to calculate state-level milk per cow data, a factor that is used in calculating Dairy Margin Coverage production history and payments.