Now’s the time to manage milk price risk
February 28, 2022
Just over two months into the new year, it has become clear that 2022 will hold many of the same fluctuations and fears of the past pandemic few years. What does look a little bit different for dairy farmers this year with milk futures prices flirting with $23 and $24. However, input costs are making those near-decade high prices look inadequate.
During the February 24 Hoard’s Dairyman DairyLivestream, Phil Plourd emphasized the importance of milk price protection especially this year.
“There's no one-size-fits-all advice,” the president of Blimling and Associates shared. “There's one thing I really, really believe in after years of watching this, the time to think about managing price risks when prices are high, not when prices are low.
“The danger is that once the market gets to $22, everybody starts talking about how we're going to $25. Then when we get to $25, we're going to talk about how we're going to $30, and then all of a sudden we wake up one morning and the bid is gone,” he continued.
While Plourd told the audience he doesn’t foresee an overnight shift in markets today, he does expect it down the road. It’s that uncertainty that has prompted Plourd to encourage producers to especially consider risk management. He emphasized the flexibility of Dairy Margin Coverage (DMC) and Dairy Revenue Protection (Dairy-RP) in particular.
“The cool thing today for dairy producers that want to manage risk, is that there are really big, good programs around that protect the downside and leave the upside open,” he explained. “There's no reason not to be signed up for DMC at the 5-million-pound max, if you can get there. And the thing about Dairy-RP is that it's subsidized puts at the end of the day.
“With these kinds of numbers, you might spend a little bit of money to protect Quarter 4, for example, but you can protect really good numbers. With Dairy-RP, you can match components and Class III and Class IV, and you can marry up to your milk price as best you can. But the really cool thing is it's subsidized and you still have the upside,” he further detailed.
While producers can find plenty of additional information on DMC, Dairy-RP, and other risk management programs, Plourd reiterated the importance of seeking some type of protection.
“I just think that's the real cool thing about risk management in the current environment is that the insurance programs are really, really valuable,” he concluded.
To watch the recording of the February 24 DairyLivestream, go to the link above. The program recording is now also available as an audio-only podcast on Apple Podcasts, Spotify, Google Podcasts, and downloadable from the Hoard’s Dairyman website.
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The next broadcast of DairyLivestream will be on Wednesday, March 23 at 11 a.m. CDT. In the new year, we moved to a new system, and if you have not yet, you will need to re-register to continue receiving email updates and links to the webcasts. You can sign up here now. Registering once will sign you up you for all future events.