Dairy Policy and Milk Marketing

Dr. Cameron Thraen, Milk Marketing Specialist, Ohio State University,
Additional milk marketing information by Dr. Thraen

He who hesitates is lost and this applies to the milk markets as well!

In the March 2004 issue of the Buckeye Dairy News, I titled the article "Are You Playing Blackjack With Your Milk Price?" In that article, I discussed the need to watch the markets and make a decision about pricing your milk or waiting to see what the market would provide by way of a price.

In this article, I will assess what has happened over the last two months. First take a look at the chart below. This is the chart that was published back in the March issue of the Buckeye Dairy News.



By the time the article appeared in the March issue, it was too late to do much about the March 2004 price, but the April 2004 through January 2005 prices were a different matter. The announced April 2004 price was $19.66/cwt. If you had used the futures contract to lock in your milk price at the time of my article, you would have left something in the neighborhood of $5.06/cwt in Class III value on the table. The May 2004 price is yet to be announced, but the current futures price is trading around $20.35/cwt. Had you locked in May, you would have left another $5.00/cwt on the table. Now, back on March 5, the average Class III price for the months of June through September looked about $15.45/cwt. Today these prices average $14.98/cwt. You would be ahead of the game by $0.47/cwt on four months of production. For the remaining period, October through January 2005, the earlier period averaged $13.30/cwt. The current Class III futures prices for these months average $12.87/cwt. You would have been ahead by $0.43/cwt shipped.


So, how would you have done over the entire period? On the two months of production, April and May, you would be feeling pretty bad. You would have left $5.00/cwt on the table. For the remaining eight months, you would be ahead by $0.45/cwt shipped. What should you have done in this situation? Perfect foresight would have told you to do nothing for April and May, and lock in June through January. Unfortunately, none of us possess perfect, or anywhere near, really good foresight into the future. By not doing anything for the April and May prices, we will feel really good about our decision. By not doing anything about the June through January 2005 price, we will feel like an opportunity has gotten away. The moral of this story is that you must have a proactive plan to price your milk out into the future. Working by the seat of the pants will not suffice. It is too difficult. As the second chart shows, the current Class III futures contract settle prices through April 2005 are sliding substantially back toward more normal price levels. The Chicago cheese market and butter market are beginning to slide backward and this showing up in the Class III settles prices giving back most of the premiums that they held just a week back. I project that this cash price slide will continue to erode the milk price over the remaining months of 2004 and into 2005. So, now is the time to answer the following question: What am I going to do about my milk price? Will I continue to be a reactive pricer or will I adopt a more proactive price management plan?

For an up-to-date look at anticipated dairy product and milk component prices connect to the Ohio Dairy Web 2004 and click on Cam's Price Outlook.