Prepare for a milk price recovery
By Dairy Herd news source  |  Wednesday, November 18, 2009

The dairy markets are poised for a turnaround in 2010, according to the advisors of Stewart-Peterson.

“We are projecting the average price for milk for 2010 to fall between $14.70 and $16.74,” says Matt Mattke, market advisor for Stewart-Peterson’s Market360 program. “We are optimistic that the $16.74 number is more probable. We even wouldn’t be surprised to see $18 at some point. That $18 price won’t be around for a long time, but we could at least touch it.”

What can dairy producers do to prepare for a likely 2010 price recovery? Here is advice from Stewart-Peterson’s Market360 team of dairy advisors:

Milk pricing

• Don’t rush into pricing too soon. We understand that with the challenges of the past year, producers are anxious to ensure future profitability. We caution against locking in very small margins when better margins are possible. The trend for milk prices should be higher. Let the trend run its course and don’t be in a hurry to sell.
• Don’t get overly bullish. When milk gets back to $17 or $18, don’t think that it will go back to $25 or $30. While we are optimistic, we do not see $20-plus milk prices in the immediate future.

Feed buying

• Protect your feed purchases. The short-term feed price trend is up. Grain prices could continue moving higher despite big yields as a weaker US Dollar fuels buying across the board. The long-term feed price trend is down. Therefore, any feed needs that are purchased to remove upside price risk should be protected with put options, as a way to remove the downside price risk present with the long-term down trend.

Overall

• Prepare now for market changes. Put a structured marketing approach in place that will guide your decision-making, no matter what the market does.
• Take a strategic approach. Do not structure your marketing based on what you think the market will do. Rather, be prepared with a set of strategies that you can employ no matter what the market does. If the market goes up, you will use one set of strategies, if it goes down, you will use another set. Either way, you are prepared. The more strategic you make your marketing, the less emotional it will be.
• Get disciplined. If you do not have structured strategies in place and the discipline to follow it, work with an advisor who will develop strategies for you and help you develop the discipline to follow your strategies.

Source: Stewart-Peterson