September 26, 2014 — Gloomy predictions are appearing of how dairy product prices will fall and pull milk prices down with them. I ask FC Stone dairy broker Dave Kurzawski in
Friday’s DairyLine broadcast when he saw this happening and what producers can do to protect themselves.
He started by saying “The market is under pressure right now and, while futures prices have been buoyant this week, spot cheese is under pressure on the block side, although some barrels have come to the market as well.”
Butter has seen some good trading over the $3 mark, he said, but he warned that “The prices won’t be long-lived at these levels without seeing some kind of response by the international market and even the domestic market as we go into Fourth Quarter.”
He said he expects some price pullback but believes butter could potentially remain above $2 per pound for the next six to nine months. “We could lose a dollar theoretically and still be over $2,” he said. “There’s downside potential on these markets,” he said, but, for right now he sees the market as “choppy” and “sideways.” He quickly added that this “gives producers a decent opportunity to lock in some profit margins through December of 2015.”
I asked him how a dairy producer wills himself to lock in 2015 milk prices which are so drastically lower than current levels. He said that “A lot of people have a hard time looking out those discounted prices and reason that they’re not going to do anything until they get up and look a little bit more like the current October November type prices.” The answer, according to Kurzawski, is “We don’t know if that’s going to happen. Realistically it probably won’t happen. The reality is that you have to look at the profit margin and the profit margin of 2015 looks as good in some cases as it did in 2014, relatively speaking, based on when you lock up your feed costs.”
“You have to look at it from a profit margin,” he concluded. It’s a good idea to leave some upside potential for 2015, “but at this point in time, people have to look at it from a profit margin perspective and then proceed.”