The Long Game for Milk
What’s Happened…
Milk futures prices have struggled for the past year, as increased production kept steady pressure on product values. Herd expansion, efficiency, increased revenue from breeding for beef calves, and technical selling (chart selling) have all played a part in weaker prices. World global dairy trade prices have slid as well. The dairy processing industry is expanding, with some estimates as high as ten billion dollars dedicated toward either revamping or building new processing plants. If demand increases, can the dairy herd respond in a timely fashion to meet demand? Or will a limited supply of dairy heifers and cows help to push milk prices higher?
Why this is Important…
High value beef calves are keeping older cows in the herd longer, as producers are breeding the cow for at least one additional calf. These cows will eventually be sent to market at a time when retention and breeding for heifers is challenged due to the high dollar value for beef calves. The upshot for dairy prices is a potential loophole where the supply of dairy cows is limited and ultimately, a return to higher product values. Milk futures of $20+ may be on the horizon in late 2026 and 2027.
What can you do about it?
Dairy producers need to keep a sharp marketing pencil. Historically, when indexed to inflation and compared to breakeven levels for grain producers, feed is inexpensive. Grain producers are struggling financially. Don’t get complacent. For feed buyers, the current environment implies opportunity. The world has produced huge crops in the last two years. There is no guarantee a third or fourth will occur. The bottom line is that protecting feed costs should be high priority.
As for protecting milk prices, should prices rally, don’t become blindly bullish. The old saying is, “outlook is fine; strategy is better.” The milk market is one that exemplifies the concept of “high prices cure high prices.” Consumer demand also tends to respond to higher prices, usually with consumers backing away. Incremental sales as prices trend higher not only rewards a rally, it also provides time to reflect and decide how aggressive you should be in your sales. The idea of a balanced marketing approach has merit. Explore all marketing tools to help generate a strategic approach to manage the price of your expected production.
Find out what works for you…
Work with a professional to find the strategy or strategies that are best suited for your operation. Communication is important. Ask critical questions and garner a full comprehension of consequences and potential rewards before executing. The idea is to make good decisions for the operation and less emotionally–charged responses to market moves, which are always dynamic.
About the Author: With the wisdom of over 36 years at Total Farm Marketing and following across the Grain Belt, Bryan Doherty is deeply passionate about his clients, their success, and long-term, fruitful relationships. As a senior market advisor and vice president of Brokerage Solutions, Doherty lives and breathes farm marketing. He has an in-depth understanding of the markets and marketing tools, a strong listener, and communicates with intent and clarity to ensure clients are comfortable with their decisions.
The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. 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. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. 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 and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. 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. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.
Author
Bryan Doherty