“Dairy markets are no longer volatile, they’re violent.”
Those words emanated out of Mike North’s mouth and set into my brain as if instantly etched in stone. Mike North, a principle with the Commodity Risk Management Group, has a great deal of inner working knowledge of dairy markets . . . especially when it comes to future contracts and Dairy Revenue Protection (DRP). The two of us were having a one-on-one conversation about the early June dairy markets.
Indeed, the dairy sector has seen futures contracts hit both bottom and top limits during trading activity on the CME in the past few months. In recent days, spot Cheddar blocks and barrels on the CME soared to historic prices — prices even higher than the record dairy year that was 2014.
Will it last?
These recent days look like potentially the best of times.
We’ve also seen the worst of times.
As dairy markets plunged at the onset of the COVID-19 pandemic, some dairy farmers pleaded with USDA Secretary Sonny Perdue to reopen the Dairy Margin Coverage Program (DMC) for 2020. Those mid-April thoughts were detailed in the Hoard’s Dairyman Editorial Comment, “We always need risk management in dairy.”
Ultimately, the USDA Secretary denied that request to reopen DMC.
“We literally begged people to sign up last year . . . it doesn’t make any sense to have an insurance program and allow people to retroactively decide to elect coverage after they need it,” Perdue said in answering questions on an April 17, 2020, media call. For more information on that matter, read “Dairy to get 18% of direct payments from USDA.”
Will you insure your milk revenue?
While DMC may be off the table for 2020, there are opportunities out there.
Class III contracts, puts, and calls could all help secure revenue throughout the remainder of the year. The DRP program also has some opportunities for the third and fourth quarter. If a dairy farmer wants to ensure the third quarter, which includes the months of July, August, and September, one better hustle as that contract door closes on June 15.
Making a projection
What will the markets do?
Who really knows?
Anyone who thinks they know isn’t being truthful.
What is known is that there are some opportunities out there that seemed almost unfathomable in March and April.
Assemble your farm teams and develop a potential game plan.
Don’t delay — this window may stay open for a while, or it may close as quickly as it opened.
As for a game plan . . . we even know of some dairy farmers who have both DMC and DRP coverage. Yes, you can purchase both risk mitigation products.
Navigating the pandemic economy
These are unprecedented times. Markets are being driven by the COVID-19 pandemic. For that very reason, the June 10 DairyLivestream will feature USDA Chief Economist Robert Johansson and Cornell University macroeconomic guru Steven Kyle. During that webcast, we will sort through the far-reaching U.S. and global economic picture.
In the meantime, remember that COVID-19 remains a threat — a threat to your milk check.
Lastly, think of futures, DRP, and DMC as insurance.
That being the case . . . do not time the market . . . secure the market.