Protect Yourself from Signs of a Weakening Bull Market for Milk

After a 12-day upward run in the spot cheese market, the technicals are showing signs of a potential pull-back. It’s possible that we’re headed for another limit down move with a negative market signal.

 

At TFM, we’re working with our clients to make sure they’re protected. As you think about your own marketing strategy, here are a few things to keep in mind:

  • Hedge what you can, and hedge incrementally to get yourself to the percent hedged you’re aiming.

    • Why not start off with hedging 25% of each month’s total production, and then seeing what transpires after that?

    • If milk prices rally further, then scale into another 25%. This will help to build a higher floor over time for each month’s production, helping to increase your weighted average price.

  • Avoid the trap of trying to time the top of the market.

    • In a bull market, it makes sense to use limited risk positions like buying put options and Dairy Revenue Protection insurance to build a floor. Your risk in buying puts is limited to the premium paid plus commissions and fees. The biggest benefit to using these tools is that they keep the topside open. This allows for participation in a stronger move.

    • By buying puts or Dairy Revenue Protection insurance, hedging production too early will have limited impact on your bottom line, because there is no ceiling on the milk.

 

Ultimately, using limited risk positions in an incremental approach will allow a producer to reap benefits from a large bull market move. The best thing to do in a bull market may be to protect higher levels and to prepare for a change of trend.

 

If you have questions, give us a call at 800.334.9779 and ask for Mike Rusch or Matthew Strelow. They can help you think about your marketing strategy, appropriate tools to use, and how TFM can help.

 

®Total Farm Marketing by Stewart-Peterson Inc.
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. Hypothetical performance results have many inherent limitations. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Reproduction of this information without prior written permission is prohibited. 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. Total Farm Marketing (or TFM) refers to Stewart-Peterson Group Inc. and Stewart-Peterson Inc. 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. TFM360 Analytics is a service of Stewart-Peterson Inc., a publishing company. SP Risk Services LLC is an insurance agency, and an equal opportunity provider and a wholly owned subsidiary of Stewart-Peterson Group Inc. A customer may have relationships with any or all companies.

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Jen

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