Like other commodities, dairy product supply chains were stressed during the initial stages of the global Coronavirus pandemic. Milk prices have improved since the lows of April and May, but price and income risk remain major concerns of producers. Organizers from The Ohio State University’s College of Food, Agricultural, and Environmental Sciences in partnership with the Ohio Dairy Producer’s Association are hosting a free three-part webinar series November 5, 17, and 24 from noon to 1:00 p.m. EST. to prepare producers to mitigate these risks.
Ohio’s Federal Milk Marketing Order Class III milk price fell to a low of $12.14 per hundredweight in May before climbing to $24.54 per hundredweight in July. However, Class III prices do not always reflect the price received at the farm. Producer Price Differentials (PPDs) can increase or decrease the final price paid to producers based on factors such as how the milk is used — bottled for fluid consumption or manufactured into cheese and other dairy products- and how much milk is pooled in the Federal Order system. For Ohio dairy producers, the PPDs fell to a previously unseen level of negative $8.02 per hundredweight in July.
“For Ohio’s dairy farms, that meant that instead of seeing $24.54 as the base price in their July milk checks, we saw $16.52 per cwt. This followed a similar scenario in June, where a $21.04 Class III price was reduced by a negative $7.05 PPD, which led to a pay price starting at $13.99 per cwt. Prices at these levels are below the cost of production for the vast majority of Ohio’s dairy farms,” said Dianne Shoemaker, Associate Professor and OSU Extension Field Specialist of Dairy Production Economics.
Furthermore, feed costs — the largest costs at 40-60 percent of an operation’s total costs- can also be highly volatile and impact final returns substantially. Corn, soybean meal, and forage all had large price swings in 2020. As milk prices on the futures market have recovered so have the prices for feed. Soybean meal prices are currently the highest since May 2018.
Ben Brown, Assistant Professor of Agricultural Risk Management in the Department of Agricultural, Environmental, and Development Economics said “2020 is a year like one we have never seen for markets and policy,” adding “it was difficult giving farm management advice to producers because conditions and policy were changing at a pace that seemed like hourly.”
The good news is that there are risk management options available to dairy producers and the organizers say their main goals of the webinar series are to bring awareness of key issues facing the dairy sector, provide a current dairy market outlook, offer educational training on public and private risk management tools, and encourage producer action either through follow-up conversations or practice implementation.
One of those risk management tools is the Dairy Margin Coverage (DMC) Program offered through the Farm Service Agency (FSA). The program allows producers to buy protection against coverage levels of their milk margin — the difference between the milk price and feed costs. The program does cost producers a premium and enrollment is required during a set period- usually in November and December of the prior year. For 2021 coverage, that deadline is Dec. 11, 2020 through the local FSA office.
In December 2019, some of the best forecasts were showing milk margins above the highest coverage levels given current futures prices for milk and feed. Futures prices are an estimation of prices later given what the market knows now. In December 2019, the market was not expecting a global pandemic. As a result, many producers did not participate in DMC during calendar year 2020 and exposed themselves to downside income risk. The DMC program for 2021 along with other price and income risk management tools will be covered during the webinar series.
The series will start on Thursday Nov. 5, with a presentation by Mark Stephenson, Director of Dairy Markets and Policy at the University of Wisconsin, on how milk is priced in the United States and a discussion about factors that led to this years’ unprecedented negative PPDs and volatile milk prices.
Session two, covering domestic and international dairy supply and demand outlooks on Nov. 17, 2020, will be presented by William Loux, Director of Global Trade Analysis at the U.S. Dairy Export Council and Mike McCully, Owner and CEO of The McCully Group.
Concluding the series is the overview of risk management tools including DMC, futures and options, Livestock Gross Margin Coverage, and Dairy Revenue Protection. OSU Extension Educators Chris Zoller from Tuscarawas County and Jason Hartshuh from Crawford County will be joined by Kenny Burdine, Livestock Extension Economist at the University of Kentucky, for the final session on Nov. 24.
“This has been a difficult year for dairy farmers, and it’s likely we will see price volatility in future years. Dairy farmers are encouraged to attend to learn about the tools available to minimize price risk as they plan for the future,” Zoller said.
The webinar series is free and open to the public for all three session from noon to 1:00 p.m. EST. The virtual nature of the webinars allows flexibility in attendance, but the sessions will also be recorded and posted at farmoffice.osu.edu under past events.
For the complete program and to register, visit go.osu.edu/dairyriskmanagement. For questions, contact Dianne Shoemaker at shoemaker.3@osu.edu, Ben Brown at brown.6888@osu.edu or Chris Zoller at Zoller.1@osu.edu.
