Are you “marginally satisfied?”
Article for IDP newsletter
By Mike Rusch, Stewart-Peterson Inc.
If you’ve ever been up in the middle of the night, you’ve seen one of the infomercial world’s biggest stars on late-night TV, Ron Popeil with his Ronco Rotisserie oven. Perhaps his famous line is ringing in your ears: “Set it and forget it!” While this feature may be attractive for selling his brand of convenience cooking, it should not be the way you approach price risk management.
You may be among the producers who locked in what you believed to be a good margin back in November and December of 2013. Perhaps you sold 50-75 percent of your milk production for all of 2014 through your milk plant or in your hedge account, with the mentality of “lock in a good margin and move on.”
Now as the milk rally has picked up steam, each month brings new regret and frustration about the prices you are missing. That’s understandable. That’s why our team encourages an active management approach rather than locking in margins for the sake of getting it done.
What is an active management approach? It is striving to achieve the best possible price levels for feed and for milk, independent of one another. For example, a producer who is actively managing market risk for milk will go ahead and make sales incrementally that will lock in favorable prices. Then, if there is opportunity for the market to rally, those sales can be covered with call options, providing the opportunity to participate in a rally. You continuously, and actively, monitor price levels and put strategies in place for future price moves.