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Coming out of Hibernation

Published on Wednesday, February 27, 2019

Coming out of Hibernation                       February 27, 2019

This time of year, milk markets often slip into what many refer to as the winter doldrums.  There is little by way of market information.  Buyers have pulled away from the market following their big 4th quarter demand push and are essentially living off of inventories as they prepare for the coming year.  Dairymen are often preparing for the coming spring flush while traders look toward spring and summer with hope of better markets.

All of that came early this year as traders and prices alike have come out of hibernation in recent days.  In the last week, milk prices in nearby contracts have risen over $1/cwt.  See Chart.  There is a lot of dispute about why this is happening.  This is especially true when considering what the value of product prices suggest Class III milk should be in March.  While confusion surrounding this move is shared by all, the opportunity that is born out of it is also shared by all.  As illustrated by the chart, March prices are the highest they have been since early November.  Moreover, the average price for the months of March through June has risen to $15.41, again the highest since November.

Regardless of the theory to which you would subscribe about price, action is warranted on open milk production for the coming months.  We invite your calls to explore which strategy works best for you, be that futures, options, or Dairy Revenue Protection.  For several weeks, options held a superior advantage over DRP for the second quarter.  While stronger coverage is still available in an option strategy, DRP coverage has again become viable as second quarter coverage closes in on its last two weeks of being available.  We would be glad to help you make the comparison.

CURRENT NEWS: As a side note, CRMG is proud to announce its work with Grande to help their producers manage milk prices through their Price Risk Management Program.  An introductory article from CRMG was recently released in Dairy Road Digest, a Grande exclusive.  For those who ship to Grande, we invite a call to discuss your next steps in better navigating their price risk management offering.

Best Regards,
Mike North

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