05/09/06 Dairy Risk Management

Dairy Risk Managemnent. I'm Greg Martin with today's Line On Agriculture. After strong milk prices in 2004 and 2005 - producer pay prices have fallen sharply in 2006 - largely on a dramatic increase in dairy production. And Elvin Hollon - Director of Fluid Milk Marketing and Economic Analysis for Dairy Farmers of America - says milk supplies remain burdensome HOLLON: That large supply of milk is still out there. We have seen production maybe past peak in a couple of states in the southeast where you normally start to see it; Louisiana, Mississippi, Georgia, Alabama, Florida. But most of the rest of the country was telling me that is flat to steady. There's still plenty of it. Not many places are reporting an increase but we still haven't started down that seasonal decline very much yet. On the other hand - Hollon says dairy demand remains robust. But he cautions high energy costs could limit the normal summer up-tick in dairy consumption. HOLLON: DFA's own chief business, the sales side, is going very well. And you are right, traditionally as we start to get into summer, the barbeque season, the grilling season begins to heat up and that will be the plus side of the equation. Perhaps on the minus side, there's a significant chunk of dairy demand that's at the restaurant table and if gas prices mean people don't go out as much because they don't want to drive or their budget gets out of whack because of gas prices, we may see some reduction on that side. What`s more - Hollon says high energy costs are hurting the profitability of dairy producers and processors alike. HOLLON: Well without a doubt it's a cost of production problem. It's universal. You can look at USDA numbers, you can just go to the gas pump and if you have a truckload of milk where there's pick up from the farm or delivering to market or delivering to a market a ways to balance, that cost is just astronomical. So it is really a hampering issue there. Your processing plants have additional costs if you're running dryers. You know those are big energy consumers and so that's all the way through the food chain. Hollon says between increased energy costs and lower producer pay prices - dairy farmers who hedged this year`s production when prices were stronger are glad they did. HOLLON: I will certainly tell you that as I have been speaking to producer meetings over the last 2 to 3 months I have been approached by a number of producers who will say; well I'm pretty well covered for this year. I've got most of my production hedged and boy I'm glad I did, but what about next year. My hedge cycle runs out and I'm kind of worried about what should I do next year. But there are people who know how to do it, who have studied the game, who know their costs. And that's one thing you can do is learn how to be a hedger. Hollon says DFA is committed to helping its members learn how to hedge their production - and has three full-time staff members dedicated to working with dairy producers on risk management issues. That's today's Line On Agriculture. I'm Greg Martin on the Northwest Ag Information Network.