December Southeast Milk Price Drops $1.04/cwt from Last Year

Cows being milked in a parlor. ( Lindsey Benne )
Due to the partial government shutdown, many of the monthly dairy reports were not compiled and released by USDA during the month of January. The Agricultural Marketing Service did continue to publish price. With the lack of other data, it would be a good time to discuss the Dairy Margin Coverage program in the Agricultural Act of 2018 (Farm Bill).

Dairy Margin Coverage: Dairy Margin Coverage is simply the new name for the Margin Protection Program established in the Agricultural Act of 2014. Several changes have been made to the program with the hope of providing more flexibility to risk management for dairy producers. The following are the highlights.
  • Producers can now use both Dairy Margin Coverage and Livestock Gross Margin for dairy and cover the same milk.
  • Elected percent of coverage ranges from 5 percent to 95 percent of production history in 5 percent increments.
  • Change in premiums for tier 1 (up to five million pounds) and tier 2 (in excess of five million pounds) production levels as well as providing higher coverage levels for tier 1 production.

Producer Premium first 5 million pounds

Coverage Level

Premium per CWT

$4.00

None

$4.50

$0.0025

$5.00

$0.005

$5.50

$0.030

$6.00

$0.050

$6.50

$0.070

$7.00

$0.080

$7.50

$0.090

$8.00

$0.100

$8.50

$0.105

$9.00

$0.110

$9.50

$0.150

Producer Premium exceeding 5 million pounds

Coverage Level

Premium per CWT

$4.00

None

$4.50

$0.0025

$5.00

$0.005

$5.50

$0.100

$6.00

$0.310

$6.50

$0.650

$7.00

$1.107

$7.50

$1.413

$8.00

$1.813

 

 

 

 

 

 

 
  • Dairies having participated in the Margin Protection Program are eligible to receive a repayment in the amount equal to the difference between the total premiums paid by the participating dairy and the total amount of payments made to the participating dairy. The dairy may elect to receive repayment in the amount of 75 percent of the calculated repayment as credit to be used by the operation for dairy margin coverage premiums or at a 50 percent repayment rate as a direct cash repayment.
  • Program premiums for each coverage level shall be reduced by 25 percent for each calendar year 2019 through 2023 for a dairy operation that makes a 1-time election of coverage level in a tier and of a percentage of coverage for the 5-year period beginning in January 2019. The discount for new dairies applies when production history is established and they make a 1-time election of coverage in a tier and of a percentage of coverage for the period beginning with the first available calendar year and ending December 2023.

Milk Price and Utilization: The Southeast Uniform milk price for December was $18.00, down $0.71 from November and $1.04 lower than December 2017. The Appalachian Uniform milk price was $17.45, down $0.67 from November and $0.92 lower than December 2017. December’s Class III price was $13.78, down $0.66 from November, and $1.66 lower than December a year ago. The Class IV price was up $0.03 from November to $15.09, and $1.58 higher than December 2017. The Class I Mover price for February is $15.30, up $0.18 from January. The milk/feed ratio for Deember was not available.

Southeast Class I utilization was 70.02%, down 8.37% from November, and 0.27% lower than December a year ago. The Uniform butterfat price was $2.5328, down 3.23 cents from last month and 0.59 cents lower than December 2017. The December Class I price was $18.85. January Class I price is $18.92. Appalachian Class I utilization was 66.57%, down 8.20% from November, and 0.98% higher than December a year ago. The Uniform butterfat price was $2.5311, down 3.24 cents from last month and 0.66 cents higher than December 2017. The December Class I price was $18.45.

Springer Prices and Cow Slaughter: At Smiths Grove, Kentucky on January 27, supreme springers were not tested while US approved springers brought $975 to $1,100 per head.

Southeast Federal Order Prices

Month

Uniform Price $/cwt.

Class I Price $/cwt.

Class III Price $/cwt.

Class IV Price $/cwt.

Class I

% Utilization

Butterfat Price $/lb.

Jul 18

18.12

19.16

14.10

14.14

73.31

2.6108

Aug 18

17.53

17.95

14.95

14.63

75.65

2.5897

Sep 18

17.94

18.65

16.09

14.81

74.76

2.5903

Oct 18

19.39

20.13

15.53

15.01

78.53

2.5658

Nov 18

18.71

19.32

14.44

15.06

78.39

2.5651

Dec 18

18.00

18.85

13.78

15.09

70.02

2.5328

 

Appalachian Federal Order Prices

Month

Uniform Price $/cwt.

Class I Price $/cwt.

Class III Price $/cwt.

Class IV Price $/cwt.

Class I

% Utilization

Butterfat Price $/lb.

Jul 18

17.52

18.76

14.10

14.14

69.06

2.6030

Aug 18

17.03

17.55

14.95

14.63

72.47

2.5914

Sep 18

17.35

18.25

16.09

14.81

69.42

2.5864

Oct 18

18.76

19.73

15.53

15.01

74.50

2.5654

Nov 18

18.12

18.92

14.44

15.06

74.77

2.5635

Dec 18

17.45

18.45

13.78

15.09

66.57

2.5311

 

What is the Market Offering for Milk to be Sold in April?

Ex: It is Jan. 30 and Apr. Class III milk futures are trading at $14.93. Local Apr. basis estimate is +$3.00.

If April futures

=

16.00

14.50

13.00

and actual blend price

=

19.00

17.50

16.00

Sample Strategies

 

 

Realized Prices for April Milk

1) Sold Futures

 

@

14.58

 

17.58

17.58

17.58

2) Bought Put

13.50

@

0.05

 

18.95

17.45

16.45

3) Bought Put

14.00

@

0.15

 

18.85

17.35

16.85

4) Bought Put

14.50

@

0.33

 

18.67

17.17

17.17

5) Synthetic Put

             

     Sold Futures

 

@

14.58

       

     Bought Call

15.50

@

0.08

 

18.00

17.50

17.50

 

What is the Market Offering for Milk to be Sold in May?

Ex: It is Jan. 30 and May Class III milk futures are trading at $15.40. Local May basis estimate is +$3.00.

If May futures

=

16.50

15.00

13.50

and actual blend price

=

19.50

18.00

16.50

Sample Strategies

 

 

Realized Prices for May Milk

1) Sold Futures

 

@

15.07

 

18.07

18.07

18.07

2) Bought Put

14.00

@

0.10

 

19.40

17.90

16.90

3) Bought Put

14.50

@

0.22

 

19.28

17.78

17.28

4) Bought Put

15.00

@

0.43

 

19.07

17.57

17.57

5) Synthetic Put

             

     Sold Futures

 

@

15.07

       

     Bought Call

16.00

@

0.14

 

18.43

17.93

17.93

 
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