While milk may be a liquid, it certainly is not a “liquid asset.” Milk is a perishable item, and its price relies heavily on that double-edged sword. When there is too much milk, there is WAY too much. When there is not enough milk, it feels like there is no milk available. This dichotomy of the milk market leaves dairy prices extremely vulnerable to market-shaking events. We have seen that with the Covid-19 pandemic; we have seen this with the trade war between the United States and China; and, in 2015 when the European Union removed decades long quotas off their books.
It is hard to think of a better time the price of milk represented its perishable nature than with the Covid-19 virus. The price of milk for May will settle just above $12.00, while the price of June milk touched $20.00. $12.00 à $20.00… in a month! The price in the dairy spot markets has been even more volatile, with the block/barrel average cratering to $1.00 per pound and now skyrocketing back over $2.30 per pound in a month and a half!
It is likely safe to say that, at the end of 2019, no one could have predicted the events that 2020 had in store for us even if they had their crystal balls shined and ready. Those who had been sticking to a consistent marketing strategy with a plan may have felt a lot more comfortable during these uncomfortable times. That is one of the major keys of a successful marketing strategy: Accepting the fact that, no matter how much you shine your crystal ball, you never truly know what is going to happen in the market. Developing a plan for yourself and sticking to it is crucial in successful farm marketing.
Over the last couple of years, dairy farmers have received a lot of great tools in their milk marketing toolbox. Insurance programs released recently in the form of DMC and the DRP are important to understand and could play a critical role in the marketing plan. Also, consider more traditional tools accessible through your milk plant as well as the use of a hedge account. Our experience tells us a combination of these tools could provide the peace of mind and confidence you are seeking in your operation’s marketing.
At the end of the day, we believe it’s important to have confidence in your operation’s longer-term success and be able to sleep at night. In a tumultuous world, utilize these tools to set some of the turmoil of price action to the side. There is already a lot to worry about, and there will always be more to prepare for. A strong marketing plan can help prepare for market-moving events.