May 1, 2019

Dairy Margins Set To Improve

 |  By: Mike Opperman

The sun is starting to shine a little brighter on the dairy industry as the dairy economy begins to show signs of life after years of darkness. 

Stronger milk prices are being supported by a draw down in supply, both in the U.S. and globally. Demand is strong, especially for higher-fat products. The combination of the two has spurred life in cash and futures markets. 

“World demand is catching up to cheap prices and supply is beginning to level off,” Brian Doherty, vice president and senior market advisor with Stewart Peterson told AgDay host Clinton Griffiths. “So that's the good story in dairy.”

Higher milk prices are coming at a time when commodity prices are relatively low, creating a stronger margin opportunity for dairy producers. Feed costs are typically more than half the overall expense on the dairy, so anytime those costs drop, margins improve. 

“You've got a divergence in milk futures prices and grain and [soybean] meal prices,” Doherty said. “So that gives a little bit of wiggle room there for producers, so take advantage of that opportunity.”

Proceed with caution, Doherty advises, because markets aren’t out of the woods yet. 

“We need to take advantage of the rallies until we really see some supply changes,” he says. “We haven't seen those yet. They'll probably come slowly over time but we're not seeing enough big supply changes to say ‘hey look, do nothing.’ Now's the time to buy puts and begin forward contracting.”

For more insight and analysis from Doherty, watch the full AgDay segment below: