Zach Myers
Jonesville, N.C.
Myers Dairy, in the Appalachian foothills, is home to 830 Holsteins and 700 replacements.
Myers’ |
*Extended comments are highlighted in blue.
There are several risk management tools available for dairy producers to take advantage of today. Forward contracting of commodities has been around for a long time.
Recently, my cooperative gave us more pricing options. Previously, I could only contract a Class I price.
I now have three options:
1. I can still contract a Class I price.
2. I can choose to purchase a minimum Class III price.
3. I can choose to purchase a minimum and a maximum Class III price.
I can book up to 80% of my historical production with all three of these options.
In the past, I have done some Class I forward contracting. I would say that overall, I have broken even. The last time I booked milk, however, I ended up booking at the wrong time and lost some opportunity when the actual Class I price rose above my contract price. Since then, I have been reluctant to book a Class I price.
I now realize that you can’t be in and out of contracting. I believe you must be constantly playing the market. I understand that sometimes I am going to hit it right and sometimes I will not. However, by booking milk, I will know what I am going to be paid, and I can plan my management accordingly. This, I hope, will take some of the volatility out of the market for me.
Both options of booking a Class III price are attractive to me. These options have just become available through my cooperative in the last month. Contracting only a minimum is more expensive but you don’t give up the upside, whereas by contracting a minimum/maximum, you save money but you possibly give up an opportunity if the Class III price moves higher than the max.
I plan on contracting more of my dairy’s milk production starting next year. I am now in the process of researching what price I need as a minimum in order to break even. My first question: How does the Class III price relate to my actual pay price? I am in the Appalachian Federal Order, which has a high Class I utilization, so my gross price is some figure more than the Class III price.
I went to my Federal Orders Web page and got the last three years’ announced Class III prices. I then went through my last three years of records and got my gross price and determined an average difference. By doing this, I can make a more educated guess as to the Class III price I need to break even. Wish me luck!
