Milk Marketing

What’s Your Farm's Strategy?

Mon, 07 Aug 2023 14:48:27 GMT

Sure, your day-to-day operations haven’t been as disrupted by the COVID-19 pandemic compared to a restaurant owner or an ethanol plant manager. But you’ve still faced disruption. When business is no longer usual, it’s a great time to reassess your strategic focus. Is your farm still marching toward its goals?

“Strategy is really nothing more than making advance decisions about how to deploy essential resources,” explains Sarah Beth Aubrey , executive coach and Top Producer columnist.

Start with a self-assessment: Are you more of an analytical or visionary thinker?

A good strategy needs both.

“Experience demonstrates even the most highly successful businesses of today are still more accustomed to executing what they already know how to do rather than pausing to consider and then implement a strategy that ensures the operation’s future growth and success,” Aubrey says.

Start Small, Grow Big

Strategic planning combines long-range thinking with short-term goals. Regardless of where you fall on the analytical-to-visionary spectrum, you can make improvements to your overall strategy.

To confirm your current strategy or rebuild it, Aubrey suggests answering these questions:

What is our organization’s vision and the theory on which we operate?
What do we do? Or what part of this market do we want to be in to deliver on what we do?
How do we do it? What actions, adaptations, and models do we create to be successful?
What capabilities do we need in order to implement what we do, such as skills of team, new or updated resources, and new or ongoing training for our people?

Don’t be intimidated by this process, Aubrey coaches. In most cases, you’re just putting to paper your farm’s foundation and priorities. This is an important process in journey to business success.

As Jim Rohn, an entrepreneur and author once said: “Success is 20% skills and 80% strategy. You might know how to succeed, but more importantly, what’s your plan to succeed?”

To learn about Sarah Beth Aubrey’s guide for creating a strategic plan in an hour, visit AgWeb.com/plan-in-an-hour

How Important is Risk Management?

Wed, 16 Nov 2022 15:00:00 GMT

Dairy markets have been volatile over the past two months. Block cheese price declined 10 cents and then rallied 24 cents. Barrel cheese price increased 37 1/2 cents, then fell 32 1/2 cents and then increased 13 1/4 cents. Butter price fell 65 3/4 cents and then rallied 32 cents. December Class III futures fell $2.42 and has rallied $2.77. December Class IV futures fell $3.11 and has rallied $1.26. No one has been able to predict this type of market movement. Price generally trends higher through October and then softens into the end of the year. This year is one for the record books.

There has been a lot of volatility through all commodities and the financial markets all year and dairy has not been immune to it. This makes it very difficult for farmers to find a solid number for the cost of production. Many are looking ahead and trying to make a cost of production projection for next year. This may be a difficult number to nail down, but it needs to be done in order to make plans for the dairy for the upcoming year. Much of the cost of production numbers next year will likely be a range and not a specific number. Lenders will need to be satisfied with that.

Many farmers have been apprehensive to do any price protection due to the uncertainty of their cost of production. However, risk management is important and with the uncertainty over milk prices and input prices, it becomes necessary to establish price floors for milk and price ceilings for feed . Utilizing options or revenue protection is a must and will either provide damage control or protect profitability.

Price protection is a serious business and one not to be taken lightly. But it is something that all should be involved in. I do need to make it clear that if you do not know your cost of production, you should not use futures or forward contracting to protect your milk price. Those two strategies lock in a specific price and dictate what you will received for the amount of milk covered. If you do not know your cost of production, you may be hedging a price that is losing money. If milk prices increase, you are locked in and cannot take advantage of the upside. In this market environment, the use of options or revenue protection insurance is the best choice. These provide downside protection while allowing for upside gain.

Marketing is as important as any other aspect of the farm. Farmers are focused on improving breeding, herd health, nutrition, cow comfort, employee relationships, facilities, quality feed production, etc. All these things are necessary to run an efficient farm. You can be the best you can be in all these areas and still lose money due to lower milk prices. Not doing anything is making the decision to leave your whole farm and livelihood at risk.

There have been farms that have done well this year by using different strategies to hedge. This has been able to add significantly to their bottom line. The recent strong price increases in milk futures are providing opportunity to establish some floors again that were not possible just a week or two ago. The recent weakness of grain prices is providing opportunity to establish a ceiling for feed prices. I have talked with numerous farmers that admit that they should do marketing but are not doing it because they do not understand it. If that line of thinking is maintained, nothing will ever be done. We are here to help anyone to better understand the market and strategies that can be utilized to provide flexibility and the opportunity to protect the downside while leaving the ability to take advantage of higher prices if they develop. Feel free to contact us.

There is concern over milk price potential after the holiday season is over. High food prices as well as prices for all goods and services may have a negative impact on demand. Maybe the large price declines of a few weeks ago are an indicator what might take place after holiday demand is finished and regular consumer demand carries on early next year. We certainly hope not but we did not anticipate the volatile price swings of the past two months.

Robin Schmahl is a commodity broker with AgDairy, the dairy division of John Stewart & Associates Inc. (JSA). JSA is a full-service commodity brokerage firm based out of St. Joseph, MO. Robin’s office is located in Elkhart Lake, Wisconsin. Robin may be reached at 877-256-3253 or through the website www.agdairy.com .

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 trading commodity futures and options on futures. It may not be suitable for everyone. This material has been prepared by an employee or agent of JSA 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.

Profit Margins Tighten

Tue, 04 Oct 2022 16:39:23 GMT

Cheese and butter prices continue to hold a large price difference with butter around $1.00 higher than cheese. One reason for this is the substantial difference in inventory levels between cheese and butter. Total cheese inventory for August was 4% higher than August 2021 while butter inventory was 22% lower than a year ago. That is having a significant impact on the interest of buyers of the product. Cheese buyers seem to be purchasing more on an as-needed basis while butter buyers have been more aggressive. Even though cheese prices are lower and the time of year would suggest demand would be higher, sellers continue to offer cheese on the spot market without reservation. They have no desire to hold back from taking a chance that prices will increase. Manufacturers would rather move products rather than speculate on seasonality or potential. The window of increased buying for holiday demand and possibly higher prices is narrowing. More orders for cheese and butter have been placed earlier this year than usual as retail and the food service industry wanted to be assured of product with delivery when they need it. This creates an unusual dynamic in the market itself.

Another aspect is the current level of inflation along with the rise of interest rates and the impact it is having on consumer prices. It is unclear how much impact it will have on demand through the end of the year, but we know it will have some impact not only domestically, but also internationally. There have been some reports of slowing demand for certain types and varieties of cheese which would be expected. However, some varieties of cheese are showing strong demand such as pizza cheeses. Much of this demand might be attributed to football season.

International demand for butterfat, cheese, and dry whey has been strong during the first seven months of the year. The latest information showed year-to-date cheese exports up 14.7%, butterfat exports up 46.3% and dry whey exports up 3.7%. There is the potential of exports slowing as the year progresses. Many world economies are struggling with inflation which may impact demand. Exports to China have declined for some products while others remain strong. Butter imports have increased 32%. Dry whey imports by China have been increasing and outpacing a year ago by 1.2 percent. Much of this can be attributed to the growth of China’s hog herd. However, even with the growth of exports to China, exports to some other countries have slowed. This has kept dry whey price suppressed near the lows of this year and the level of late 2020. China’s imports of whole milk powder and skim milk powder have declined significantly. Overall exports of dairy products to other countries may begin to decline as the impact of the high U.S Dollar may impact export demand.

Farmers in the U.S continue to struggle with the high cost of production. Income over feed in August was $8.08 and the lowest it has been since September 2021. The positive outcome of this is that there will be a payment rendered to those who chose to take part in the Dairy Margin Coverage (DMC) program at the $8.50 level or higher. This is the first DMC payment that will be distributed since November 2021. The negative aspect is that profitability is declining. The latest Agricultural Prices report showed a huge increase in the average soybean meal price in August of $43.03 per ton to $510.90. Premium/supreme hay price jumped $10.00 per ton to an average of $343.00. With the All-milk price declining by $1.40 per cwt, it had a substantial impact on income over feed with a decline of $1.84 per cwt from July.

The bullish implications of the Quarterly Grain Stocks report for corn and premium/supreme quality hay already at an extremely high price at this time of year, could potentially reduce income over feed further as time progresses.

Stop by AgMarket.net booth (TC 664) in the trade center and visit with me at World Dairy Expo.

UPDATED: Trump adds $1 billion to food box program

Fri, 23 Sep 2022 18:06:45 GMT

(UPDATED Aug. 27) President Trump has added $1 billion to the U.S. Department of Agriculture’s Farmers to Families Food Box Program and extended it beyond the end of October.

The White House announced the development Aug. 24 when Trump, Agriculture Secretary Sonny Perdue and presidential advisor Ivanka Trump toured Flavor 1st Growers and Packers, River Mills, N.C. The company has been packing and distributing food boxes through the program.

“From day one, my administration has been determined to protect our nation’s incredible farmers,” Trump said in a news release about the $1 billion addition.

The program originally authorized $3 billion for the boxes and is expected to spend a total of $2.67 billion from mid-May through the end of August, covering the first two rounds of the program. The application process for a third round for $500 million to $700 million was announced July 24, and those contracts go through Oct. 31.

As of Aug. 27, 74.5 million boxes had been distributed, according to the USDA.

The boxes of fresh produce, dairy and meat have gone to more than 10,000 food banks and nonprofit organizations. In addition, the White House said thousands of jobs have been saved or created, according to the release, including more than 5,000 in the food distribution industry.

On Aug. 25, the USDA published a list of companies whose Basic Ordering Agreements (BOAs) have been approved for the third round of awards. All of the 47 companies plan to pack combination boxes of produce, milk/dairy products and cooked meat; the USDA said it would allow produce-only boxes but would place a priority on the combination boxes.

The BOAs are part of a two-step process for USDA approval in the program, and are designed to ensure the distributors and intended food bank/nonprofit recipients have agreements about how the distribution will take place. It will also ensure that regions of the country that didn’t receive adequate food boxes will be prioritized.

“PMA applauds the commitment from the administration to extend funding to the program and will share more details about the program as they become available,” Richard Owen, vice president of global membership and engagement at the Produce Marketing Association, said in a news release.

In a LinkedIn update to members, United Fresh Produce Association president and CEO Tom Stenzel praised the move.
“We commend the administration for taking this important step to continue this win-win-win program for farmers, distributors and families in need,” Stenzel said in the statement.

Related stories:

USDA accepting proposal for third round of food box program

Food box readies for sudden start

Packer Insight - Food Box Program plus creativity at retail

A Mixed Bag in the CME Dairy Products Trade

Wed, 27 Jul 2022 21:53:40 GMT

It was a mixed bag in the CME dairy product trade. Block cheese erased 6 cents, settling at $1.9375/lb. Barrel cheese fell 3.25 cents to $1.9575/lb. Butter gained 3.50 cents to $2.9925/lb. NFDM dropped 1.50 cents to $1.6650/lb. Whey gave up 1 penny to $0.4550/lb.

Class III milk futures tumbled lower on the day. August milk slid 50 cents to $20.67/cwt. September milk lost 42 cents to $20.32/cwt. Class IV milk futures increased in both 2022 and 2023.

The grain markets also were varied. December corn tacked on 2.25 cents to $6.03/bu. November soybeans jumped 26.25 cents to $14.10/bu. December soybean meal rallied $8.30 to $426.10/ton. September Chicago Wheat moved 13.50 cents lower.

The livestock sector saw both red and green. October live cattle dropped 5 cents to $142.32/cwt. September feeder cattle pushed $1.42 higher to $181.85/cwt. October lean hogs surged $2.80 to $96.45/cwt. September crude oil added $2.28 to $97.26/barrel.

Dairy Markets Push Higher

Tue, 26 Jul 2022 20:20:31 GMT

Tuesday’s spot dairy product session was higher. Block cheese was up 4.25 cents to $1.9975/lb. Barrel cheese pushed 5.25 cents higher to $1.99/lb. Butter increased 2.75 cents to $2.9575/lb. NFDM added 1 penny to $1.68/lb. Whey gained 1.75 cents to $0.4650/lb.

Class III milk futures surged on the day. August milk launched a 50-cent gain, settling at $21.20/cwt. September milk moved 23 cents higher to $20.78/cwt. Class IV milk futures were also higher on the day.

The grain markets saw sizeable gains Tuesday. December corn jumped 17 cents to $6.0075/bu. November soybeans pushed 37.75 cents to $13.8375/bu. December soybean meal rallied $18.70 to $417.80/ton.

The livestock sector was lower across the board. October live cattle decreased 97 cents to $142.37/cwt. September feeder cattle lost 2.25 cents to $180.42/cwt. October lean hogs fell 47 cents to $93.65/cwt. September crude oil erased $1.68 to $95.02/barrel.

With Ever.Ag this is Kyle Tranel on Know Your Markets.

Have the Markets Turned a Corner?

Mon, 25 Jul 2022 19:00:00 GMT

The market can be driven by trader psychology for a duration of time and can result in prices being overdone to one side or the other. Fundamentals will always rule in the end. Recent reports may indicate the market may see a change in thinking again.

Market Psychology

Although the phrase, “These are the times that try men, souls” was first written by Thomas Paine during the American Revolution, it certainly can be adapted to the current commodity markets. News changes daily and even intraday. Volatility abounds. Instant access to news causes traders to run from one side to the other within a short period of time. In some cases, market psychology takes over pushing the market one way or the other for sometimes extended periods. This has been very evident in the milk market.

The first few months of the year saw milk futures push higher nearly every day with steady spot cheese prices a reason to believe there was strong support under the market. Even if spot prices declined, futures moved higher in anticipation the decline would be short-lived, which it was. Traders were focused on the idea that milk supply would continue to tighten as culling was heavy with production costs increase dramatically. This was logical thinking and provided support under the market. Buyers of cheese, butter, dry whey, and nonfat dry milk were aggressive in the spot market as they wanted to own the physical product early to avoid having to scramble for it later. Buying products early and paying storage for a longer duration than usual was a hedge against potential supply tightness.

Market psychology changed in early June as the impact of inflation was being felt throughout the country. Consumers were adjusting to higher prices by purchasing less of certain products and cutbacks were made on eating away from home thereby saving both money and fuel. It appeared the country was going to be in this high inflationary period for some time to come.

Buyers that had purchased dairy products early at high prices, were now concerned over the level of demand through the second half of the year. They were potentially now overbought on product for the time being. This resulted in them becoming less aggressive in the spot market while at the same time sellers wanted to move products at the best possible price and as quickly as possible. The result has been cheese prices falling back to the lowest level since early March, nonfat dry milk falling back to early January and dry whey falling back to prices of late December.

June Production Report

Milk production for June showed a surprise increase of 0.2% over June 2021. This was the first year-over-year increase so far this year. There were 4,000 cows added to the nation’s dairy herd since the previous month indicating that farmers are pushing milk even with higher input costs. This added to the bearishness already in the market. However, the June Cold Storage report was also a surprise as cheese inventory declined. This indicated movement of dairy products remains strong even though there are reports of slowing orders from retail and the food service industry. Seasonally, cheese inventory decreases from May to June and this year has been no exception. This may increase the interest of buyers on the spot market due to current low prices and the possibility that demand might remain better than expected.

Cattle Inventory Report

The other report that was recently released was the Bi-annual Cattle Inventory report. This showed the number of dairy cattle and the number of milk replacement heifers on farms as of July 1st. Dairy cows totaled 9.45 million head showing stability of cow numbers for July during the past five years. However, the number of replacement heifers was the lowest it has been since July 2005 at 3.75 million head. The ratio of heifers to milk cows was 39.7% and the lowest ratio it has been since July 2003. This indicates a tight heifer market and one that will limit expansion anytime soon. The strong beef market over the past few years resulted in more dairy cattle being crossbred with beef animals improving the profit potential from the dairy operation through marketing calves for beef as an additional revenue stream. Now the inventory of heifers is tight which will limit a surge in cow numbers if the cost of production improves. Some expansions will take place, but those expansions will be the result of purchasing cows from other farms that go out of business. This could set up an interesting scenario over the next few years depending on milk prices and the costs to produce that milk.

I will be at the World Dairy Expo this year in Madison, Wisconsin in the AgMarket.net booth TC 664. If you are making plans to attend, please stop by the booth to say Hi. The dates for the trade show are October 4 - 7.

Robin Schmahl is a commodity broker with AgDairy, the dairy division of John Stewart & Associates Inc. (JSA).

Milk Markets Flatline

Tue, 15 Mar 2022 21:53:28 GMT

Global Dairy Trade event 304 concluded on Tuesday with the overall price index down 0.9%. Skim Milk Powder gained 1.4% to $2.06/lb. Whole Milk Powder slid 3.4% to $2.08/lb. Cheddar Cheese gained 0.3% to $2.91/lb. Butter lost 1.8% to $3.16/lb.

Turning to the CME spot dairy product auction, block cheese gave up 7 cents to $2.12/lb. Barrel cheese dipped to $2.02/lb. Butter remained at $2.7350/lb. Whey held steady at $0.7575. NFDM continued at $1.8450/lb.

Milk futures were lower on the day for both class III and IV. April tumbled 48 cents to $23.42/cwt. May lost 25 cents to $23.87/cwt. June dropped 15 cents to $24.05/cwt. April class IV closed at $25.05/cwt. May class IV settled at $25.15/cwt.

The grain markets were a mixed bag Tuesday. May corn gained 9.50 cents to $7.5775/bushel. May soybeans fell 13.50 cents to $16.57/bushel. May Chicago Wheat rallied 61 cents to $11.57/bushel.

The livestock sector was slightly higher. April live cattle rose 52 cents to $140.85/cwt. April feeder cattle added 20 cents to $162.60/cwt. April lean hogs also jumped 20 cents to $102.40/cwt. April crude oil declined $6.36 to $96.65/barrel.

Dairy Margin Coverage Payments Triggered for Tenth Month in a Row

Wed, 01 Dec 2021 21:33:40 GMT

Ten for ten, USDA’s ag Prices report announced yesterday afternoon that the October 2021 Dairy Margin Coverage (DMC) income over feed costs resulted in $8.77/cwt. This resulted in ten out of ten, that being ten months in a row that DMC payments have been triggered. This results in insurance payments for milk covered at $9.00 and $9.50 levels.

Each 1 million pounds insured at the $9.50 level will receive $576.63 before appropriation. Year-to-date each 1 million pounds covered at $9.50 will have been paid more than $23,000.

The USDA all-milk price equated to $19.70/cwt, an increase of $1.30 over last month. Although hay price was $230/ton, $3.50 higher than September. Corn was down $0.43 to $5.02/bu. and soybean meal was also down $18.12 resulting in $325.43/ton.

Year-to-date DMC Payments

Through November 1, more than $1 billion has been issued in DMC indemnity payments, primarily representing payments for January-August milk. Also, more than 25,000 dairy operations with established DMC milk production history this year, 6,222 have not enrolled for the 2021 DMC program. Year-to-date payments across all participating dairies averaged $56,726.

USDA has still not announced the changes to be made to the hay price calculation use in DMC feed cost calculations, nor when any adjusted indemnity payments retroactive to January 2020 will be distributed. Also, there has been no announcement regarding when the enrollment dates for 2022 coverage will begin.

Shaping Up for 2022

Prevailing milk and grain futures prices suggest producers will see improved income over feed margins in 2022. According to Phil Plourd, president of Blimling and Associates, Inc., the DMC model had 2022 at close to $9.75/cwt compared to $7.05 for 2021 and $8.75 over the last five years.

“Of course, unless producers are securing hedge coverage, ‘prevailing’ is not the same thing as “realized,” Plourd says.

Noting that things are especially volatile out there on both the milk and feed sides of the equation, Plourd says it appears that dairy product prices are on solid ground for the near term, as the pandemic continues to deliver new twists and turns.

The 2022 Class III and Class IV are in the top third of the historical price frequency distribution at $18.75 and $19.12 per hundredweight, respectively.

Plourd says as far as feed goes, it could be a white-knuckle ride into planting season as markets assess planting prospects in environment featuring tight supplies and soaring prices for fertilizer.

“We’ve also been thinking a lot about non-feed costs,” says Plourd. “It’s nice to see income over feed prospects improve. But dairy producers are also seeing a lot of cost inflation beyond the feed bunk, such as labor, materials, and transportation. Everything costs more.”

Bottom line, 2022 is shaping up to be a better year than 2021 for U.S. dairy farmers, says Plourd. “But the situation feels more tenuous than usual,” he states.

4 Bright Spots in the Post-Pandemic World

Thu, 04 Nov 2021 20:51:02 GMT

COVID-19 has disrupted and impacted every type of agriculture in every corner of the globe. The future will definitely look different from the past. In the long run, what opportunities could farmers harvest? Consider these emerging trends.

1. Home Cooking creates Demand

2019 was the first year Americans spent more money on food away from home versus money spent on food consumed in the home. But that trend is shifting due to COVID-19, says Dan Basse, president of AgResource.

“We will consume more meals in the home now than pre-COVID-19 days,” he says. “The food consumption skew favors an ‘American renaissance’ with home meal preparation.”

As consumers prioritize safety and food availability, expect this cooking-at-home trend to continue and increase demand.

2. Farmland Shines in Uncertain Times

Ahead of the COVID-19 outbreak in the U.S., R.D. Schrader, president of Schrader Real Estate and Auction Company, says farmland values were showing strength.

“It is very location dependent,” he says. “But we had some examples of the strongest competition we have seen at auction in the last five years.”

Tight land supplies, favorable interest rates, relatively high farmer incomes and strong interest for 1031 exchanges have kept farmland prices stable to higher. Combine those trends with COVID-19, and you have farmland poised to be a highly sought-after, safe haven investment option.

Case in point: In Nebraska, the statewide all-land average value for the year ending Feb. 1, 2020, averaged $2,725 per acre. That’s a 3% increase to 2019’s value and the first year-over-year increase since farmland values in the state peaked in 2014.
Over the years, farmland has been a strong diversification tool for investing. Schrader says in the past two recessions, farmland steadily outperformed the stock market:

During the dot-com bubble of 2000 to 2002, the S&P 500 dropped 44%. Meanwhile, row crop farmland returns increased by 18%.
During the financial crisis of 2007 to 2009, the S&P 500 dropped 46%. Meanwhile, row crop farmland returns increased by 26%.

“While there are times the S&P 500 runs ahead, it’s times like this when farmland will look really attractive,” Schrader says.

3. Farmers Create Resilient Business Models

For direct-to-consumer Tennessee producers Jennie Schutte and Walt Patrick, COVID-19 created angst — and opportunity. When the family couldn’t sell their beef, pork and lamb cuts at their local farmers markets earlier this year, Schutte knew it was time to be resourceful and creative.

“Social media, specifically Facebook and Instagram, have been our bread and butter,” Schutte says. “We have a newsletter, too. All of our advertising is on social media. We push information constantly.”

When supermarket shelves were stripped of essentials, including meat, earlier this year, Schutte started doing porch deliveries of their Pilaroc Farms (pronounced pile-a-rock) products. Since farmers markets have opened back up, the door-to-door deliveries are on hold, but the Pilaroc team is considering deliveries, and shipping, as part of the future business model.

“Jeff Bezos has totally spoiled us into thinking we’re supposed to have something on our porch within 24-to-48 hours,” Schutte says. ”Consumers are looking for more convenient options.”

To learn more from the owners of Pilaroc Farms about how to pivot your business model, visit AgWeb.com/Pilaroc

4. Agriculture Will Receive Respect

A great upside to COVID-19 is consumers are starting to understand how agricultural supply chains work, Basse says.

“Consumers have not had a relationship back to the farm gate,” adds Luke Chandler, chief economist for John Deere. “This crisis gives us an opportunity to tackle that challenge and look for the opportunities to connect with consumers so they can value the entire supply chain.”

Conflicted on Showing Livestock

Are we putting our kids in danger? Is this the right decision? I’ve never had those thoughts before as we headed off to show our pigs at a national show — but 2020 is different.

Everything feels like a battle in my mind these days, as coronavirus is a difficult enemy to battle.

Working with our showpigs allows us to focus on something other than COVID-19. When the opportunity presented itself to get the pigs to a national live show in July, we wanted to give it our best shot to get there.

Was the risk worth it? I hope so. The one thing I know about this virus is that it’s hard to know what’s right. No one agrees — not even the experts.

At the end of the day, we had to weigh out what was best for our family. Because really, that’s all any of us can do. ~Jennifer Shike, Farm Journal’s PORK Editor

Is Risk Management Worthwhile?

Wed, 28 Jul 2021 19:37:29 GMT

The past two weeks have not been positive for milk prices based on what has transpired in underlying cash prices. Weakness has turned price significantly lower once the spike high was set on July 14th after an emotional price increase in cash cheese ran its course. The result was that both barrel cheese and Class III futures moved to new lows. Now, it may take a monumental effort to move milk futures higher even if underlying cash increases for a few days or possibly even longer.

There has been the anticipation and still is that the heat and drought conditions that have been prevalent so far this growing year will have a significant impact on feed prices and thus on milk prices. Escalating feed prices could then have an impact on milk production as culling may increase which would reduce overall milk production and tighten milk supply. There is also the anticipation that demand for dairy products would continue to increase as restaurant traffic improves. There has also been the anticipation that strong exports of dairy products would limit inventory growth. All of these things are taking place, but so far have not had the impact on milk prices that have been anticipated. There still is a lot of time is which any, or all, of these might have an impact. However, continued strong milk production has been able to satisfy demand for both bottling and manufacturing.

The one thing we can be certain about and that is uncertainty. That is why it is important to implement a marketing program to protect milk prices against periods of lower prices. Yet, it seems difficult to many producers to utilize the tools available to accomplish that task. One of the recent tools that has been made available is Dairy Revenue Protection insurance. It is an insurance product that is similar to any other insurance that is purchased with the exception that it is purchased on a quarterly basis rather than on a yearly basis such as crop insurance.

Dairy Revenue Protection insurance has been embraced rather readily since the beginning of 2019 with quite a few farmers taking part in it. Some had received some significant indemnity payments at times depending on what day they chose to write an endorsement for some or all of their production or whether they used class or component pricing. Some received minor indemnities or none at all depending again on when those endorsements were written.

After 2 1/2 years of this insurance being available, I am hearing and sensing that some are becoming disillusioned with the program. They spent money on endorsements and have not received anything in return. They feel it is another expense that they do not need, especially during this time of high feed prices. They indicate that the insurance has not been beneficial to them. In other words, they did not receive any payment in return for what they paid for and that to them is an added expense that is not needed.

It is interesting to note that this is how some farmers look at this marketing tool. I have also heard this from those who have also used put options to protect milk prices. The fact that they did not receive any money back from that investment renders it ineffective and not worthwhile. However, those who feel this way consistently purchase crop insurance, health insurance, vehicle insurance and farm insurance without hesitation for the purpose of protection. That should be the same way with Dairy Revenue Protection insurance or purchasing puts options directly through the market. It is just as important as any other insurance. The difference is that this is protecting the income from your business while at the same time allowing the opportunity for your income to improve if the market moves higher. But as with anything else, there is an expense.

Dairy Revenue Protection insurance should not be viewed as a way to make money, but rather to protect your income from falling below the cost of production. If any marketing strategy is used to protect prices, whether for feed or milk, which will maintain or improve cash flow, then you can be confident you will remain in business as long as you desire.

Please contact me if you would like some help with marketing as I can help you with all areas of risk management.

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 www.agdairy.com .

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.

ZISKapp Simplifies Dairy Risk Management

Mon, 15 Mar 2021 14:01:21 GMT

After working with dairy producers for nearly two decades, Dr. Kevin Hoogendoorn was alarmed and frustrated by the complexity of milk marketing tools, and the negative affinity most of his clients had toward them. So, he decided to do something about it.

Hoogendoorn, a dairy veterinarian, nutrition and management consultant based in northwest Iowa, created the ZISKapp. It’s a smartphone application that monitors milk and feed prices, and projects a dairy’s profits for the next 12 months.

“I’ve seen too many dairy producers lose sleep, equity, and sometimes their businesses, because they were not well versed in risk management,” said Hoogendoorn. “In fairness, most milk marketing tools are not user-friendly. Many producers avoid them because they find them confusing and scary, or because they tried them once and got burned.”

“ZISK” is a Polish word for profit, which the veterinarian chose as a positive moniker for a tool that helps dairies monitor and protect their financial futures. To use it, producers enter a few simple metrics specific to their enterprises, including:

Number of cows in the herd
Average daily milk production
Average basis (mailbox price minus Class III price)

Based on these three statistics, the app displays the farm’s projected profits for the next 12 months. With multiple algorithms incorporated into the app’s programming, it factors in the expenses of running a dairy. Market data directly from the Chicago Mercantile Exchange for milk, corn and soybean meal also updates within the app every 10 minutes.

Users can set limits to trigger alerts so the app will send a notification when prices hit a specified threshold. It also will reconfigure profit projections based on input of potential commodity contracts. By entering the month, year, quantity and price of a hypothetical contract, users can see a quick calculation of how that contract would affect their 12-month profitability.

“In recent years, we’ve seen a lot of wild swings in both the milk and feed markets, and I don’t think those days are over,” noted Hoogendoorn. “By providing dairy producers with a simple, easy-to-understand tool, I hope to help them navigate future market gyrations and keep their dairies on an even keel of profitability.”

The ZISKapp is funded by advertisers, and is free for download by dairy producers. It can be accessed via both Apple and Android devices. More information on the app, along with dairy industry news and a quick tutorial, can be found at https://www.ziskapp.com/ .

Time to Assess Your Milk Marketing Program

Mon, 30 Nov 2020 17:23:56 GMT

There has been some frustration over the use of hedging this year. Assuredly, it has been difficult due to the extreme volatility and the large negative Producer Price Differentials (PPD’s) that we have experienced and will continue to experience for another month or two. Hedge positions were implemented at levels that should have been above cost of production and even with a decent return on investment given a normal market. However, negative PPD’s changed the average basis that was anticipated severely reducing pay prices. This resulted in some hedging strategies that did not work at times.

What I mean by “at times” is just that. If futures or forward contracts were implemented just before prices fell early in the year and then during the high prices of mid-year for the September contract, it worked well. The large negative PPD’s still were a part of the pay price, but any gain realized from the market due to significant large declines helped to offset the losses from negative PPD’s. The problem came when forward contracts or futures were implemented and then milk prices went higher. It the case of forward contracts with the milk plant, one could not take advantage of the higher milk prices, but suffered further losses due to the negative PPD’s. Those who used futures were required to pay margin on their positions as milk futures move higher and then had the negative PPD’s removed from their milk prices as well.

Those who panic forward contracted in March or early April due to the fear of low milk prices due to COVID-19, had a very difficult year deepening on the length of time these forward contracts were extended. Those who jumped in and sold futures had to pay substantial margin calls if done at the same time and for the same duration.

Those who used options and option strategies or Dairy Revenue Protection insurance fared better. Yes, these did not eliminate the negative PPD’s, but they did provide protection while at the same time leaving the upside open providing a one and done payment despite the wild price fluctuations. If milk prices fell, there was a payment that was received depending on the strategy and the levels chosen. If prices did not decline or moved substantially higher, only the premium was paid and the higher prices taken advantage of.

The Dairy Margin Coverage (DMC) program was also a huge benefit this year to a marketing strategy as payments were received five of the nine months so far this year. There is a strong possibility we may see at least another month of a DMC payment before the year is finished. It is recommended that you sign up for the DMC program for next year if you are not already in the program. The end of the sign-up period is December 11^th. The outlook for grain prices and the milk prices does not bode well for a positive income over feed for 2021. That can change substantially, but this program has been very beneficial.

Even though this year has been a real challenge for marketing, the last thing you want to do is decide to not do anything for risk management going forward. The large impact of PPD’s should be reduced and move back to a more normal pricing next year. There will always be opportunities to protect milk prices using various strategies. Instead of looking at this year with frustration, we need to look at it as a time of learning. Use it to assess your marketing program and decide if there are strategies that might work better or even a combination of strategies. The goal of a marketing program in to protect prices and farm equity and not to speculate to make money.

Don’t Miss Your Chance to Enroll in the Dairy Margin Coverage Program

Tue, 17 Nov 2020 16:55:15 GMT

One thing we learned in 2020 is the value of safety net programs. In the first quarter of the year many producers were caught off guard when the black swan event of COVID-19 pulled a rug out from under the dairy markets. Let’s not make that mistake again. Enrollment for Dairy Margin Coverage program for 2021 ends Friday, Dec. 11, 2020.

“2020 has been a challenging year for agricultural producers, and we don’t know yet what the next year will bring,” FSA Administrator Richard Fordyce. “Dairy producers should definitely consider coverage for 2021 as even the slightest drop in the margin can trigger payments.”

The DMC program, created by the 2018 Farm Bill, offers market protection to dairy producers when the difference between the all-milk price and the average feed cost falls below a certain dollar amount selected by the producer.

Farmers can select a $4.00 catastrophic level of coverage with no premium fee or they can choose to buy-up coverage where the premium is based on margin triggers between $4.50 and $9.50 on 5 to 95 percent of established production history. FSA has a margin calculator tool to help determine what level of coverage your operation needs.

2020 Program Payments

At press time, the DMC program paid out four times in 2020.

USDA Issues Interim Rule Amending All Federal Milk Marketings Orders

Thu, 12 Nov 2020 18:07:53 GMT

Pro Farmer Editors

USDA today issued an interim final rule amending the Class III and Class IV product price formulas in all Federal milk marketing orders. The decision was based on testimony at USDA public hearings held in Strongsville, Ohio, (Feb. 26-March 2, 2007); Indianapolis, Ind., (April 9-13, 2007); and Pittsburgh, Pa., (July 9-11, 2007). These amendments were announced on June 20, 2008. The interim order was approved by dairy farmers in all 10 Federal milk marketing orders.

The decision amends the manufacturing allowances for cheese, butter, nonfat dry milk (NFDM) and dry whey. Specifically, this decision adopts the following manufacturing allowances: cheese - $0.2003 per pound; butter - $0.1715 per pound; NFDM - $0.1678 per pound; and dry whey - $0.1991 per pound. This decision also increases the butterfat yield factor of the butterfat price from 1.20 to 1.211. These amendments will be effective Sept. 1, 2008.

The interim order appears in today’s Federal Register. As announced on June 20, 2008, public comments and exceptions to the tentative final decision are due on or before August 19, 2008. USDA will consider the comments and exceptions and issue a final decision.

Wisconsin Milk Marketing Board Rebrands to Dairy Farmers of Wisconsin

Thu, 12 Nov 2020 18:07:44 GMT

The Wisconsin Milk Marketing Board has rebranded by changing the organization’s name to Dairy Farmers of Wisconsin.

The name change will better help the Wisconsin’s dairy farmers connect with consumers both domestically and globally.

“As the marketing and promotion arm for Wisconsin’s dairy farmers, this new identity puts the dairy farmers squarely at the center of what we do and provides a much stronger platform to share the Wisconsin dairy story,” says Dairy Farmers of Wisconsin CEO Chad Vincent. “Our organization exists to be tireless advocates for our dairy farmers, to help these family businesses thrive because they, and the fruits of their labor, are the heartbeat of the industry and our state.”

“The dairy industry is facing several challenges, including globalization of our markets, increased regulation and ongoing low prices for milk,” says Jeff Strassburg, Chair of the Board of Directors and a fifth generation Wisconsin dairy farmer. “This change will put Wisconsin dairy farmers in a better position to help us grow and stay focused on the future.”

The Dairy Farmers of Wisconsin helps promote Wisconsin dairy products through marketing and advertising. The organization was established in 1983 when the state’s dairy farmers voted to form the marketing order.

Wisconsin’s dairy industry contributes $43.4 billion annually to Wisconsin’s economy. According to Dairy Farmers of Wisconsin 90% of milk in the state is used for cheese production and 90% of cheese is sold outside of the state.

For more information on the name change watch the following video:

Benefits of Collecting Farm-Level Data: An Overview

Thu, 12 Nov 2020 05:59:31 GMT

This article was written by Kinsie Rayburn, Conservation Knowledge Officer for Trust In Food. Learn more at trustinfood.com.

Profitability and productivity are key components to the survival of a farm operation, and efficiency is a key variable in calculating how profitable and productive an operation is. To perform those calculations, reliable data is needed.

There has been a lot of talk and proof points about how farm management data benefits the agriculture industry. What seems to be less commonly highlighted is the direct farmer benefit data collection provides. That’s what we want to talk about here.

Here is an overview of how collecting and using farm-level data can benefit you, as a farmer, today:

Validating decisions. Making changes to farm management practices is something you likely do fairly often. Collecting data on changes in seed choice, fertilizer type and application rate, irrigation scheduling and soil management tactics each impact the productivity of your farm. When that data is captured and compared over time and across different fields, you can identify when something works or needs improvement and make better crop production plans. This takes a lot of guesswork out of the planning and decision-making process.

Improved recommendations. Agriculture experts are a great resource; however, the data they have to work with greatly affects the recommendations they can make. The data you collect helps provide consultants with more accurate information, which increases the consultant’s ability to advise on best practice recommendations for your specific situation. That same data can also help inform your own decisions especially over time.

Input modelling. Uniformity is not a common characteristic of cropland acres. Because factors such as soil type, topography and hydrology vary, so must input application rates. Capturing sub-field-level data on variations allows you to apply inputs such as water, fertilizer and pesticides to targeted areas where those inputs are needed most. Whereas county-level data can provide you with area or county averages, capturing and using sub-field-level data on input needs addresses the unique needs of your farm operation.

Crop protection. Some farm-management software helps identify, document, monitor and manage unwanted pest species, whether weeds, insects or disease, and recommends optimal control solutions. Pest management is complex and when done right involves documenting spray application, managing for resistance and integrating practices that suppress pests. Documentation of pests and the control measures that worked best can help assure optimal yields..

Yield monitoring. What goes into the ground is just as important as what comes out. Capturing harvest data provides you with real-time, accurate information that helps inform you on how productive your fields were and identify weak points. Using this data, you can then evaluate the strengths of your acres, target weaker areas and make decisions that improve your farm’s efficiency, such as adjusting application rates or deciding to implement a conservation mechanism such as a buffer area in less productive areas.

Profit mapping. Combining geospatial, harvest, input data and economic information like invoices and sales receipts helps you calculate cost of production, identify the productivity of each acre or field and make decisions that increase the profitability of your operation.

Keep in mind, the value of a tool is not inherent — it is how the tool is used that gives it value. Afterall, a hammer would do a terrible job of digging a hole but works incredibly well for nailing one board to another. The same goes for data — the value data can provide to you can only be recognized when it is put to use to evaluate your farm operation and make decisions based on those insights, and you don’t need to be a data analysis expert to get value from the data you input. Every input is something you are deeply familiar with already. Farm management software helps organize data points across years, acres and changes in management decisions that can be used to increase the overall efficiency and long-term profitability of your farm operation.

This article is part of a three-part series about the direct farmer benefits of capturing and using farm-level data. The first article, The Benefits of Data: An Overview, covers some general benefits of farm-level data collection such as profit mapping and input modeling. The second article, Making Data Pay, covers some of the economic benefits of data collection. The third covers the Legacy Benefits of Data. You can find these articles and more about conservation agriculture on agweb.com/acam.

The insights in this article are based on original Trust In Food research conducted in spring 2020 in collaboration with Syngenta. The research focused on farmer perspectives about conservation agricultural practices. Trust In Food and Syngenta thank the farmers who participated in the study and are hopeful the information can help U.S. farmers continue to run profitable, efficient and sustainable operations.

Choose Your Must-Attend Sessions for Farm Journal Field Days

Thu, 12 Nov 2020 05:59:07 GMT

The Farm Journal Field Days agenda has been designed to address the biggest issues and challenges facing the agricultural industry right now. We have a full three-day agenda covering topics including strategies to deal with financial stress to balancing equipment with manpower and much more.

We want to ensure all farm leaders have access to the information and trends essential to business survival and success. Check out all the sessions here and build your own agenda across the three days.

Register Now!

Key highlights include:

How to Face and Overcome Financial Stress
Speakers: Tim Homan, Rabo AgriFinance; Ben Pagel, Northeast Security Bank; Paul Neiffer, CLA
Tuesday, August 25 12:00 P.M. CDT or view on-demand

2021 Cash Rental Negotiations: Overcome the Noise and Negotiate Like a Pro
Speaker: Chris Barron, AgView Solutions; Mark Faust, Echelon Management; Ryan Bristle, Russell Consulting Group
Wednesday, August 26 9:00 A.M. CDT or view on-demand

Match Hybrid Characteristics with Your Fields
Speaker: Ken Ferrie, Farm Journal Field Agronomist
Tuesday, August 25 9:00 A.M. CDT or view on-demand

Gain Control of Weeds Despite Regulatory Changes
Speakers: Aaron Hager, University of Illinois; Bob Hartzler, Iowa State University; Larry Steckel, University of Tennessee
Wednesday, August 26 9:00 A.M. CDT or view on-demand

How to Play Grain Marketing Offense Heading into Harvest
Speakers: Joe Vaclavik, Standard Grain; Bill Biedermann, AgMarket.net; Ed Usset, University of Minnesota
Thursday, August 27 9:00 A.M. CDT or view on-demand

See you Aug. 25-27 for Farm Journal Field Days! Reserve your FREE spot now. Register Now!

For a program agenda or more information about Farm Journal Field Days and the #FarmON Virtual Benefit Concert, go to www.FarmJournalFieldDays.com .

Your Farm Debt: Two Decisions to Consider

Thu, 12 Nov 2020 05:52:52 GMT

With this year’s drawn-out and stressful planting season in the books, now is a good time to assess your financial position. How are your managing your debt load?

“It is never not the time to think through your debt situation,” says Ashley Arrington, of AgriAuthority . “Your debt is a year-round deal. Don’t just think about it when it’s crunch time and everyone is running in for their renewal all at once.”

If you think you might want to make a change around your debt structure, start planning now, says Arrington, also a 10-year veteran of ag banking. She recommends starting with two key questions.

Should you restructure your debt?

Start by scheduling a meeting with your banker to discuss options, Arrington suggests. See if they offer any other debt structures that may be a smart option for your operation.

“Do they have a balloon? Long term fixed rate? Or a 10-, 15-, 20-year amortization? Just ask what structures they have in place,” she says.

Also, ask your farming peers about what options they are using. “Then use that information to compare and possibly come up with new ideas for your own debt situation,” she says.

Should you move your banking business?

Start by looking at banks around you, Arrington suggests. Also ask your peers on who they use or recommend.

“Yes, it may be harder to close a full deal if your assets are cross collateralized on your line of credit this time of year, but it is not impossible,” she says. “Or even if you don’t want to go through the whole process now, you can go ahead and establish a relationship with the banker you would like to move to.”

You can provide your operation’s information to a prospective banker to determine their structure, she says, which you can compare to your current lender. “That lets you have ideas to think about during this year for next year.”

Overall, Arrington encourages, don’t delay in learning your options.

“Research and analyze your options, then when it’s best for you (now or next renewal season) you will be ready and be first in line at the banker’s door to get a deal done,” she says.

Read More: When Should You Think About Your Debt Structure?

Make no Assumptions About Credit Availability

Thu, 12 Nov 2020 04:50:21 GMT

The thermometer may not indicate the approaching cropping season and your equipment may continue its winter hibernation, truly the time to prepare for that season is upon us. Before equipment is readied and inputs are ordered, the finances must be lined up.

The economics of dairy farming over the last couple of years have been challenging to say the least. Low milk prices have meant that many dairy farmers will not show profits for 2017. Considering that smaller profits may have also been repeated in 2015 and 2016, many lenders are moving toward an increasingly cautious approach to pumping more money into dairy businesses.

While spring planting may be months away, farmers cannot assume that just because they have had a line of credit approved in the past, that money will be renewed again for 2018. Michigan State University Extension recommends that right now is the time to start preparing for the financial aspect of spring planting and the real cost of the summer of 2018.

Here are some items you should consider for preparing for the upcoming season:

Don’t delay. Even if your taxes are not completed, it is time to assemble your records and open discussions with your lender. They need time to evaluate your records and the prospects for the coming year. If your lender tells you that they will not extend you additional credit, you will need 60 to 90 days to work through credit requests with other potential lenders. Lenders will want to see your balance sheet as of December 31, 2017, 2018 projected cash flow and profit/loss reports for 2017, 2016 and 2015.

Project your cash flow for the year. It is critical to anticipate your cash flow in years like this because understanding how income and expenses intersect with time will let you communicate to a lender exactly how much you will need, when and for how long. Make your cash flow detailed, considering all costs, and use market values for milk price, adjusted according to how your prices have been relating to Class III market prices. Michigan State University Extension has a Farm Cash Flow Spreadsheet available at: http://www.canr.msu.edu/farm_management/finances/budgets-production-costs-decision-making-tools

Reexamine your crop plans. It is a good time to question the way you have been doing things. Should you be planting the same number of acres that you have in the past to the same crops? Is there marginal land that you could leave fallow or rent out? Are there cooperative arrangements that you could enter into for ground and crop work?

Consider your long term plans. If profits have been negative for several years then consider that it is time to change your business. Either change to develop a more profitable model or consider alternatives to farming. That may include transitioning part of your farm to the next generation or selling land.

Seek advice. Bring together a team of advisors to help you think through alternatives and strategies. Extension Educators can be an important part of helping farmers evaluate alternatives and think through the consequences with them. Include other key advisors such as your lender, feed consultant and managers who can look at opportunities and constraints with you.

Make it a priority. There are always things that can take you away from doing the paperwork and business analysis that many don’t enjoy, especially in times like this. However, getting your house in order in regard to upcoming expenses should top your list of priorities.

There is a real concern that some farmers may be surprised this year by the response of their lender when they go looking for a seasonal loan. The point is not to assume that your credit will be renewed but to start early and consider changes to your business plan.