Dr. Cameron Thraen, Milk Marketing Specialist, Ohio State University, Additional milk marketing information by Dr. Thraen
If you are a regular to my Ohio Dairy Website (http://aede.osu.edu/programs/ohiodairy/), you will be familiar with a chart that I post on the opening page each day. This chart appears under the heading 'Mideast Price Watch @ a Click.' On the chart, I show the current Class III futures price for the next 12 months and the average Class III prices where the averages are calculated over a 3, 5, 7, 10 and 14 year period. What is the point of posting this chart daily? What information do I wish to convey to you - the dairy farmer?
Despite all of the sophisticated, complicated, and oftentimes intractable quantitative models which will tell you precisely how much of your upcoming milk production you should hedge or protect with a price floor using the Chicago Mercantile Exchange (CME), only you can make that decision. The information on the website chart shows you the current opportunities relative the past average prices and puts this in the form of premiums or discounts. Premiums if the current Class III futures prices are above the past averages and discounts if below. If a chart is not to your liking with the click of your mouse button, you can also retrieve the information as a table. The table below is an example from May 19, 2005. The first 4 months provide information for 2006 (as 2005 is already history) and the remaining data show the premiums and discounts for May through December 2005. Entries in RED are discounts and show you that the current Class III futures prices are below that particular average. On this same web page, you can access a print version of this table that you can hang daily in your milk house office.
Currently, the futures market has turned from very robust to rather weak. There are still premiums available in this market but they are nothing like those available only a few months ago. Just back on March 1st premiums for May through August where all well over two dollars with most above $2.50/cwt! Hopefully, you took advantage of these premiums and priced at least some of your May through September milk with a direct hedge or an option contract. With rational expectation that milk production across the United States would come roaring back, spurred by record high prices the last half of 2003 and all of 2004, these price premiums where too good to pass-up. Or did you? Now, the reality of high milk prices curing high milk prices has taken hold in the markets and the premiums must be weighed carefully against their cost. The reality is that we will have plenty of milk and this is evident in the eroding premiums as we move further out into 2005 and then 2006.
Are there any opportunities still in the market for this year or have they all vanished? Take a close look at the pricing opportunities for November and December. Current Class III futures prices are above the long-term median price for these months. They may not remain there for long. I suspect that one more U.S. milk production report (June 16th) showing robust cow numbers and yields will all but end the good times for prices for at least the next 12 months.
Well, it is time to drag my horse back into the barn. If you like to stay up-to-date as to the opportunities (or lack thereof) for getting better than average prices for your milk, be sure to bookmark my Ohio Dairy Website (http://aede.osu.edu/programs/ohiodairy/) and visit daily. My current milk price outlook can be viewed on the web. I update this outlook each month. Check it out at http://aede.osu.edu/programs/ohiodairy/ProActivePricing/priceforecast.htm.
For a complete update on current market conditions, futures, and options markets, and policy issues of importance to Ohio and Federal Order 33 producers go to my web site, Ohio Dairy Web 2004, and click on Cam's Price Outlook.