Cooperative Extension Offers Futures Market Satellite Conference VERNON ACHENBACH JR. Lancaster Farming Staff LANCASTER (Lancaster Co.) Dairy producers looking to excercise more control over their cash flow may consider using existing trade exchange contracts to protect their investments. While it sounds as though the advice is for farmers to become Wall Street savy, it isn’t But it does mean that some homework is recommended before adopting futures contracts as part of the farm’s cash management strategy. The advice coming from Cooperative Extension experts and from several Mid Western farmers this week is for farmers to consider ways to avoid the effects of volatil ity in milk price, through taking advantage of an apparent consis tent relationship between the price paid for milk in a given month and the predicted U.S. Department of Agriculture basic formula price (BFP) of milk. The relationship, in this case the difference, between the price of milk and the BFP has historically tracked along fairly regularly. Regularly enough in fact that Phil Durst, Penn State dairy extension agent for several north central counties, published an article in his August newsletter that explains the relationship fairly well. Using a graph of the price per hundredweight of milk versus the months from August 1997 to April 1998, he charted the levels of the BFP futures as they were at the close of trade on August 18. The BFP was the lowest line on the graph, because the BFP is low er than the price received for milk. ”... the Federal Order Blend Price predictions ... arc arrived at by adding the historical (seven year average) difference, or basis, between the BFP and the Federal Order price for each month to the BFP Future Contract prices.” By analyzing the graph, he explained that, ”... market users expect the August BFP to be $1 or more (it was $1.14 at the time) higher than the July BFP. They also predict that the price will rise for two more months with a peak over $12.50 for October, and then decline to around the $l2 mark.” N ROASTING can help you get the most from your soybean production. NMd quote* on Custom Roasting? call SCHNUPP’S Rood advice on storago options? call SCHNUPP’S Naod your grain further Processed? Call SCHNUPP'S Want to sot data on your roasted grain? Call SCHNUPP’S FROM THE FIELD TO THE FEEDER, WE CAN HANDLE ALL YOUR GRAIN ROASTING NEEDS. is-— 1 -* * Wsilln ttrajnftnstftnM 9«t*» - S*pd6*^R«!iS- ( <Joot Crnm w#*' ■\ SQhnupp'* .< ;• Grain Roasting t'’ .< ‘ (717)865*6611 Groff’s Grain Roasting, Inc. RD 3, Lewisburg, PA • (717) 568-1420 The gist of his newsletter article was to provide some outlook for farmers who could perhaps use it to prepare themselves. “I encourage you to look over your cash flow for the coming months. Using this information tp make some estimates about incom e and look at expected expenses. If you forsee cash flow difficulties ahead, talk to your lender now. Take this milk price graph with you to show them what to expect “Knowing what to expect doesn’t take the sting out of low prices, but it reduces the suprises and allows you to plan ahead.” While Durst’s newsletter article wasn’t part of Monday’s telecon ference, it fairly well explains and demonstrates the relationships that allow using BFP Futures contracts to stabilize income. But using futures contracts is only for those who truly know their actual costs of production, and are efficient enough to at least be mar ginally profitable at the level of a projected basic formula price for a given month. Otherwise, it doesn’t make a lot of sense to even think about con sidering being involved with using the tools offered thus far through the seminal dairy trading markets in New York and Chicago. A live satellite downlink prog ram held Monday afternoon about the market tools and how they can be used by dairy producers to man age their risk in production invest ment was broadcast from the Uni versity of Wisconsin, and moder ated by Pam Janke, farm director for WTSO radio in Madison, Wis. The program was designed to provide a fundamental understand ing of the dairy contracts available on future production as traded through national trading exchanges. It was sponsored in part by the University of Wiscon sin Extension and the New York Coffee, Sugar and Cocoa Exchange, which is currently doing the largest volume of business. The program was available across the country with 135 sites s will be on time... you be ready m they are? participating, according to Janke. link site, and there were others in recorded the program and copies Locally, the Lancaster County the state and other states through are to be available in a couple of Extension Service provided access different university extension weeks at cost. Contact Shirk at and take-home information for a downlink sites. (717) 394-6851 for information nominal fee. Adams County (For Lancaster Countians, about availability. Others should Extension also provided a down- Glenn Shirk, county dairy agent, (Turn to Page A3S) PMMB Sets Emergency Hearing (Continued from Page A3O) and the mainstream dairy industry, as well as the state’s largest mem bership political farm organiza tions are not behind the current call for a $14.50 floor price. Federal dairy policy also is call ing for the restructuring and reduc tion in the number of federal dairy orders, which are subdivisions of the nation’s dairy production into different pricing regions, ideally reflecting differences in produc tion and delivery costs. That is still to come and can be expected to have more impact on dairy policy and pricing alliances in efforts to block the fed eral approval of recombThant bovine somatotropin as a stimulant to increase milk production. In fact, depending on which fac tion is surveyed, the dairy produc tion community appears to hold a range of opinions as to what should be the proper course of action for federal government in addressing the dramatic decline in dairy prices and the number of dairy farmers leaving the business. The U.S. agriculture secretary has the authority to implement a number of decisions and actions that can affect the milk price, though public hearings are required protocol, and the current bent of governmental policy is to limit government’s affects upon the industry, especially as it adjusts to a complete disappear ance of federal incentives for production. During this re-election cam paign year. Sen. Specter has distri buted news statements calling upon Glickman to take certain actions, though Specter should have known that the secretary had already announced those actions were to be taken. In those cases, Specter’s news releases were made just prior to the anticipated action by Glickman, making it appear to the uninformed as though Glickman’s qctions were being done as a result of the influ ence of Specter’s political clout However, national dairy policy has already been set to eliminate all federal dairy support by 2000, OUTDOOR FURNACES HOT WATER HOTAIR WATER FILLED GRATES § WARRANTY 10 YEARS < | I OPTIONAL 8 AUTOMATIC OIL BACK UP COUNTRY PINES SALES & SERVICE (717) 532-5820 MILK. IT DOES A BODY good: Lancaster Farming, Saturday, September 13, 1997-A33 Other Changes Further, recent and pending mergers of dairy cooperatives into national powers sets the stage for cooperatives generally exempt from anti-monopoly laws —to eventually influence the price of milk even more than they have. Maryland dairy producers last year formed a political organiza tion for the first time, in response to the disappearance of dairy farms and with help from those con cerned about the loss of farmland. During meetings and hearings, it was apparent that predatory pric ing has been in effect from out-of state milk marketers in an effort to eliminate competition in Maryland and gain control the market When the farms are gone, espe cially those sold for residential or commerical development there is little chance that dairy production will resume, giving long-term Attention North Central PA & Central PA Farmers Broiler Finishing Contracts Available on New Houses Make A Big Difference Chore-Time's MODEL C2* feeder is the result of more than 40 years of innovative breeding. Here are a few of the, traits you get from the Chore-Time bloodline: • Labor-saving Feed Windows. • Chick-friendly Feeder Grill Design. • Unsurpassed feed converting ability. For more information call 1-800-673-2580 ask for Jay Kreider Authorized; U. |. ~j| Northeast Agn Systems Inc Fiyway Business Paik A West Airport Rood BIUU Litltz. PA 17543 SB Ph (717)669 2702 HU 1-800-673-2580 strength to the surviving out-of state suppliers. It was implied that dairy market ing cooperatives were involved. In a news release this week. Milk Marketing Inc., in Strongs ville, Ohio, announced that the corporate boards of four of the nation’s largest dairy marketing cooperatives voted to present terms of a consolidation that would make them the largest A merger of the four would cre ate the Dairy Farmers of America (DFA) marketing cooperative with an estimated control of 21 percent of the nation’s milk supply. According to the news release, “DFA’s objective is to enhance economies of scale and to expand markets for member milk." Cooperatives involved in the consolidation proposal are Mid- America Dairymen Inc. of Spring field, Mo; Milk Marketing Inc., Western Dairymen Cooperative Inc. of Thorton, Colo, and Salt Lake City, Utah; and the Southern Region of Associated Milk Pro ducers Inc. or Arlington, Texas. According to Herman Brubaker, chairman of MMI and proposed chairman of the consolidated cooperative, “We’ve laid the foundation for a cooperative that can serve dairy fanners in this tough competitive environment.” Earlier this year, Atlantic Dairy Cooperative merged with Land O’Lakes to form a larger, more national-scope cooperative. * ® SC m Oelmorvo State FodroUtxag MO .Fotmotty toon I (HW 73<-636l
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