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.”
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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,
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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
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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.
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