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  • ZISK

Unprecedented Volatility

Robin Schmahl

November 2, 2020

Class III milk prices for the final two month of 2020 have changed dramatically since mid-September. The change has been positive with November futures up nearly $6.40 per cwt with December up about $3.50 per cwt. As I have said before, the market almost always comes down fast than it went up. The question as to when that may happen is one all minds. The highest prices move, the more traders become nervous. Any slight indication of weakness sends the market substantially lower. The reverse is also true. The year so far has been unprecedented in both price movement and volatility. The final two months will be no exception.

There is some news trickling through that buyer resistance is beginning to develop at these high cheese prices. This may be true for the retail market, but not for government purchases as they will be done no matter what the price. The difference will be that less will be ab le to be purchased when prices are higher as the fourth round of the Farmers to Families Fox Box program is now underway with $500 million appropriated to provide boxes for those in need through the end of December. Bear in mind that these food boxes also contain a variety of other foods. There is no way of knowing if this program will continue in 2021. Consumers may begin to reduce purchases as prices increase. The one aspect that may delay the impact of high prices is holiday buying. Consumers are more willing to open their wallets during the holidays. Once this holiday spirit is over, high prices may curtail demand rather quickly.

The discount in Class III milk futures of later months to closer months has set records spread prices. Record spreads have also been established between block and barrel cheese prices as well as block cheese to butter prices. The impact of COVID-19 and government purchases for food programs changed price relationships substantially. It may take some time for the market to correct to more normal price relationships. COVID cases are surging again in the U.S. as well as other countries which may prolong the recovery of price relationships.

The volatility seen in milk futures has also been seen in income over feed prices. There have been substantial payments through the Dairy Margin Coverage (DMC) program so far this year. March showed an income over feed price of $9.15. March fell to $6.03. April went down to $5.38. Most recent September came in at $9.40. The total payments that were available under DMC reached $8.04 per cwt if milk production did not exceed the level of 5 million pounds for these months and if the $9.50 income over feed price level was chosen. That has certainly been a large help to level out some of the lower milk prices as well as reduce the impact of negative Producer Price Differentials that have been experienced. The sign-up period is taking place for next year and is something that should be a part of anyone’s risk management program.

Robin Schmahl is a commodity broker and owner of AgDairy LLC, a full-service commodity brokerage firm located in Elkhart Lake, Wisconsin. He can be reached at 877-256-3253 or through their website at The thoughts expressed and the basic data from which they are drawn are believed to be reliable but cannot be guaranteed.  Any opinions expressed herein are subject to change without notice.  Hypothetical or simulated performance results have certain inherent limitations.  Simulated results do not represent actual trading.  Simulated trading programs are subject to the benefit of hindsight.  No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.  There is risk of loss in commodity trading may not be suitable for recipients of this publication. This material has been prepared by an employee or agent of AgDairy LLC and is in the nature of a solicitation. By accepting this communication, you acknowledge and agree that you are not, and will not rely solely on this communication for making trading decisions.



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