LGM-Dairy to Continue, Despite Farm Bill Impasse

11/2/2013 7:00 AM
By Charlene M. Shupp Espenshade Special Sections Editor

Congress might be trying to sort out the next steps for the Farm Bill this week, but for the LGM-Dairy program, it’s business as usual. Last weekend, farmers had a chance to purchase policies through a crop insurance agent.

During his protecting your profits call last week, Alan Zepp, risk-management coordinator for the Center for Dairy Excellence, said that unlike other government dairy programs, such as the Milk Income Loss Contract, or MILC, crop insurance is viewed as the way the country is going to handle risk management.

The October buying period was last Friday and Saturday. Zepp said margins are still running higher than the five-year average and at or above the three-year average.

Looking at milk markets in general, there are some interesting dynamics. The first is the projection that Class IV milk will be the driver for Northeastern milk prices until January 2015.

The Northeastern milk price is based on the higher of two prices, Class III or Class IV. Class IV has been in the driver’s seat since February 2013.

“That’s a very long time for the Class IV price to be the driver,” Zepp said.

The uptick of the Class IV price driving the market is that it will influence Class II prices.

Zepp did note the unavailability of some market data for this month’s call due to the federal government shutdown.

The export market continues to benefit dairy farmers. Zepp said 17 percent of milk solids were exported, the highest levels the country has seen.

The export market is providing a retail outlet, which is needed as the far Western dairy industry continues to recover and improve production. The strong export market has the ability to absorb this added production.

Although things appear to be looking good, Zepp is not all sunshine and rainbows. He reminded the group that a change in the marketplace could affect farm profitability.

For example, indications are that feed prices will be lower this fall. He questions whether milk will follow or prices will remain high.

If you “see strong margins and don’t act to protect them, you are gambling,” Zepp said.

As for exports, he said he does not see the strong export trend continuing over the long term.

But before that changes, “will there be something in the short-term to cause a blip? Probably,” he said.

Looking at the markets, he reminded people of the positioning of milk prices and higher margins compared with the five-year history.

“That strikes me as a sell signal,” he said, advising that farmers should take advantage of the market position.

The next purchase period for LGM-Dairy will be Nov. 29-30.

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