Make the Most of Current Milk Prices
As kids go back to school in the late summer and early fall, it’s common to see milk prices rally. Bottling plants are getting ready to push more bottled milk through their facilities than they have all summer, which causes fluid consumption to rise. While dairy farmers could reach new price highs later this month, Mike North of Commodity Risk Management Group warns that prices could slip again by the end of the year.
“This is generally a good time of the year for the dairy markets,” North told AgDay TV host Clinton Griffiths. “Seasonally we start to see prices go higher.”
The hot summer has caused lost production in some regions, but overall, milk bottling plants that have wanted to run at capacity have been able to do so, according to North. “We’ve seen some production decline because of heat, but spot loads of milk are still available around the country,” he said.
According to North, high prices have pushed U.S. dairy products out of export markets. “As we’ve climbed higher, we’ve priced ourselves out of the export market almost universally,” he said. “There’s not a lot of hope for that product to leave the country. We’ve got to consume it domestically.”
North said the fundamentals point to trouble ahead for U.S. milk prices. “I wouldn’t be surprised to see milk prices fall off as we go to the end of the year and start the new year,” he said. “I’ve told producers to be taking advantage of this rally because fundamentally we still haven’t given cause for structural change.”
North’s recommendation: Use current prices to your advantage. “Start taking advantage of profitability,” he said. “Get some options strategies in there.” North says farmers can put a floor in place with a $16 put strategy that will take them all the way into next year at a decent price.