Feed Rally Shows Why Managing Risk is Crucial

December 2020 corn futures are up nearly $1.00 from their August low. December 2020 soybean meal futures have jumped over $100 per ton from their August low. Weather in South America is dry, U.S. grain exports are strong, and the Dollar is weak. The feed market is once again on the rise. Did you prepare for it?

More importantly, are you preparing now for what lies ahead?

Hedging feed price risk should be just as important to a dairy producer as marketing milk. Input costs can make or break an operation’s chance of profitability in a given year and can really make a difference on the bottom line. A lot of talk around the industry is given to marketing milk consistently. Endless articles are written about the marketing tools available such as Dairy Margin Coverage, Dairy Revenue Protection, Livestock Gross Margin, among others. Marketing milk is extremely important, and is just half of the puzzle. Protecting input costs should be given just as much attention. 2020 is a great example of why that is the case.

Throughout the majority of 2020, soybean meal prices were trading near decade lows. The market price continually hovered around or below the $300 per ton level and the fundamental outlook was lacking. Although after the recent rally, those $300 prices are now a thing of the past. With the market sitting near ten-year lows, dairymen shouldn’t have become complacent with the market. Instead, they should have been licking their chops and locking in feed needs for at least twelve months out. Why? To protect against the unknown.

The same can be said about the corn market. Corn prices were dropping like a rock during March and April of this year. The market hit multi-year lows and, once again, the outlook at the time was bleak. Now? It is a much different story. Corn is back over the $4.00 per bushel threshold and futures are still climbing. Proactive dairymen could have booked twelve months of needs with the market at sub-$3.30 levels and could have had risk managed through this rally.

Producers were given an extremely good opportunity back in March and April to book feed needs for a year or more out. When opportunities like that present themselves, have a plan. An approach that has worked well for us at Total Farm Marketing is to incrementally buy needs as the market falls. Set targets beneath the market, stay disciplined when those specific levels hit, and be ready to contact your supplier to book needs when the time comes. If your supplier is unable to book for the time period you are looking at, know how to use market tools such as call options or futures contracts to hedge yourself. Do what you can to help your bottom line and protect against the unknown.


© 2020 Total Farm Marketing

Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC, all part of the Total Farm Marketing family of companies. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association; Stewart-Peterson Inc. is a publishing company; SP Risk Services LLC is an insurance agency. A customer may have relationships with all three companies. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. This material has been prepared by a sales or trading employee or agent of Total Farm Marketing and is, or is in the nature of, a solicitation. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing.


Evan Disher

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