Milk Price Volatility: Combat Risk While You Can
May 25, 2020
Dairy producers across the country breathed a collective sigh of relief when milk prices started improving just two weeks ago. However, Brian Doherty of Total Farm Marketing told AgDay host Clinton Griffiths this is an opportunity to manage risk and not a time to become complacent.
“Cheese prices have been near the highs, so we see some good things in general, all the way around,” he says. “Yet if you look at the market, real volatility is here.”
It was less than a month ago that the bottom fell out of the dairy market. “It was really, really gut wrenching to have to go through that,” he says.
For that reason, Doherty is pleading with producers not to get complacent.
“This is not the time to get comfortable,” he warns. “We don't know where this COVID thing and demand are going to go, a week from now or a month or two months from now, so we're still very cautious.”
While things are looking better, Doherty says at some point the market could get ahead of itself and factor in increased demand. Use the Risk Management Toolbox Because it looks like market volatility is here to stay for a while, Doherty says it’s time to control what you can.
“You can't control a lot of things but one thing you control is the use of the right tool at the right time,” he advises. “Look at any type of insurance that you can look at, but also look at the put options. They're a really good property to own right now. With the market up, they become cheaper. They put a floor in and leave the top side open.” Buy Feed While It’s Cheap “If you're not going to buy feed now, my question is when are you ever going to buy feed?” he says. “It's on sale. It's cheap. You've got a crop that has to be produced in front of the marketplace right now. What better time to step in front of it?” While some farmers might think it feed prices will go even lower, Doherty says to buy more if it does.
“There's no excuse for letting these cheap prices get away from you,” he says. “You can either book it or if you don't want to do that because you think they're going lower, buy call options right now against soybean meal, against corn, even soybeans.”