Marketing: Feedstuff, milk marketing can be the worst/best of times
History has shown that when feed prices are the highest – and the feed outlook is the most uncertain – is when some of the best selling opportunities have been offered in the milk market.
By Matt Mattke
Since the May low, the price of December corn has rallied 64%, from $4.99/bushel to a recent high of $8.18/bushel. The price of December soybean meal over the same time span has rallied 45%, from $351/ton to a recent high of $510/ton.
Despite the magnitude of the feed price increase to date, the rally may not yet be over. Corn and soybean meal prices have rallied into new all-time high territory and that may fuel higher highs over the next several months.
This is a bittersweet pill. In the short run, higher feed prices are going to be bad news for producers who do not have any feed price coverage. In the long run, higher feed prices are going to create some big opportunities for producers to lock in good milk prices.
The graphs below features two charts covering the same period. The top chart is a monthly milk price chart. The bottom one is a monthly corn price chart.
The vertical dashed lines running across both charts are placed one to two months before a major top is reached in the corn market. When comparing the price action following those vertical dashed lines, it’s evident that when the corn market put in a major top, it was not long after the milk market followed with a major top of its own.
History has shown that when feed prices are the highest – and when the feed outlook is the most uncertain – is when some of the best selling opportunities have been offered in the milk market.
Several months ago I wrote an article for Eastern DairyBusiness that went in depth into analyzing the price relationship between feedstuffs and milk (using the corn price as a benchmark for feed). The conclusion of that article was that when it’s the best time to forward price feedstuffs, it’s the worst time to forward price milk; and when it’s the best time to forward price milk, it’s the worst time to forward price feedstuffs. There were several examples laid out from 2006 to 2011 supporting that message. Since writing that article, the market has provided another example.
The best time to forward price feedstuffs recently was back in early May, when corn was $4.99/bushel and soybean meal was $351/ton. At the same time, the July–December 2012 average milk price was around $15.20/cwt. Now, corn is over $8.00/bushel, soybean meal is over $500/ton, and the July–December average milk price is over $18.20/cwt.
Since it continues to hold true time and time again that when the best time to buy feedstuffs is the worst time to sell milk, then the opposite must continue to hold true.
That will be the big opportunity for 2013 – so be prepared. There will come a time when 2013 milk is going to need to be aggressively sold in the face of high feed costs, because waiting for low feed prices will mean waiting for low milk prices, too.
When it is the best time to sell 2013 milk, it will be the worst time to buy 2013 feedstuffs.