Milk Market Situation

H.M. Harris, Jr., Extension Ag. Economist

Several producers have called in recent weeks asking if the time was ripe to price some milk on the futures market or by contracting. My response has always been "I don't know or I would be in the market myself." However, I have suggested that patience might be rewarded in the face of slackening production, and rising cheese and butter prices.

Class IV futures have now advanced to the $14.50 neighborhood for all contract months from April to November. This translates to a blend price hedge of $16.80 or so for 3.5 milk delivered in May through December ($2.30 basis, one month lag).

This is a very good price by recent standards. Two words of caution. First, prices may continue to rise. If you hedge, you must view margin expenses not as a loss, but as the cost of reducing price risk. Second, remember that the Class IV futures are not very liquid. On March 28, there were 156 trades and open interest stood at 2,285. So, it may take some time to find a buyer.

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