If this year has proven anything, it’s that we cannot predict the future.
The panelists of the December 9 Hoard’s Dairyman DairyLivestream, sponsored by Diamond V, kept that perspective in mind as they discussed how 2021 appears to be shaping up for the dairy industry. And although next year will likely bring less price fluctuation than 2020, they encouraged dairy producers to insure their product against what the future may bring and take risk management into their own hands.
Farmers may rightly ask why they need to manage risk if the government is going to do it. The Farmers to Families Food Box Program and Coronavirus Food Assistance Programs (CFAP and CFAP 2) have provided tremendous support for depressed dairy prices this year.
But with a new administration coming in, those options may not continue far into the coming year. Different assistance options might be introduced, but many unknowns remain about the future of the pandemic economy. Even beyond the pandemic, USDA priorities are likely to shift.
“Do we think the next four years are going to look like the last four years in terms of government intervention? I’m going to go with no,” predicted Matt Gould, who follows dairy markets closely for The Dairy Market Analyst. “And if the answer is no, then don’t make your decisions on the last four years.”
Catherine de Ronde, an economist with the Northeast cooperative Agri-Mark, echoed those sentiments. “Please don’t hang your hat on the government coming out and being that lifeline that it was this year, at least not to the extent that we saw in 2020,” she advised.
In that case, risk management is essential, though she acknowledged how difficult that has been in 2020 with price projections that swing wildly. “This year, some of that volatility going away and us getting back to a more normal situation will make, should make, risk management a little bit more appetizing,” de Ronde believes.
You will sleep better
She pointed to Dairy Margin Coverage (DMC) as a valuable tool. Smaller farms, particularly, that can cover their entire production at 5 million pounds should consider this option. “DMC is the easiest option you can do,” she said. “I’d be going in at the $9.50 level, 95%, if you’re under the 5 million [pound level]. Over that, we’ve got a lot more other tools that have a better premium structure and can do some really great things for you.
“You’ll sleep better, and it will certainly help me sleep better if you have that protection in place,” continued de Ronde, who works with and consults farmers in her cooperative.
Veteran dairy economist Mark Stephenson added his support, noting that “DMC is not tied to futures markets. It’s one of those things that’s just good, basic coverage.”
Instead, DMC is an insurance policy on your milk margin. You hope you don’t need it, but you’re relieved it’s there when you do. As Gould said, “Usually, when you want insurance, it’s too late.”
Sign-ups for the Dairy Margin Coverage (DMC) program close tomorrow, December 11, at your local Farm Service Agency (FSA) office.
An ongoing series of events
The next broadcast of DairyLivestream will be on Wednesday, January 6 at 11 a.m. CST. Each episode is designed for panelists to answer over 30 minutes of audience questions. If you haven’t joined a DairyLivestream broadcast yet, register here. Registering once registers you for all future events.