Milk Risk Management

Lock in your prices with National Farmers Risk Management Tools

Volatility. Uncertainty. Marketing Risks.

Farmers today face an enormous amount of price risk as you market milk, livestock and grain. That means you need the advantages of futures and options.

Today’s agricultural markets shift with seasons and sometimes with the news cycle. Whether you’re raising cattle, producing milk or growing corn, soybeans or wheat, National Farmers offers risk management choices to help you level the global farm market playing field.

Discover Milk Price Security

 As a dairy producer, reducing your price risk exposure means peace of mind. You’re busy enough making sure your cows are well fed, healthy and comfortable, your facilities are in good shape and your employees know how to do their jobs exactly right. When you add marketing at a profit, and price risk management, your agenda is full, and then some.

But you’re in dairy farming for life. That means you will absolutely find a way to protect your operation’s financial picture. A key factor is the milk price. So, if you want to take advantage of the milk market’s good days, so-to-speak, and avoid its bad days, options are a way to make that happen. Put options essentially provide you with price insurance. With UltraOptions, we offer floor price protection on the Class III milk price in 25,000 lb. increments. It’s the real deal.

Guaranteed Floor Price

For dairy producers like you, who want to lock in a guaranteed milk base price, or floor price, options fulfill your wishes. What’s even better is, if you want the opportunity to take the announced price when it goes higher, you can.

In milk pricing, with National Farmers’ UltraOptions, you can have the best of both worlds. You have a choice — take the cash price or take the price secured through dairy put options. Whatever’s best. So, the UltraOptions program provides you with a dairy farm’s pricing strategy of choice.

Here’s how it works. We purchase Chicago Mercantile Exchange Class III put options on your behalf to establish a floor price on up to half of your milk production. UltraOptions provides you a floor price on your milk — without the danger of a margin call. The only investment you make is the one-time fee of the cost of the put option, without any more risk down the road.

UltraOptions
Assure a Guaranteed Floor Price
Keep the Door Open to Higher Cash Market Prices
Prevent Margin Call Hassles and Worries
Offer Easy Risk Management with National Farmers’ Help
Make futures accounts unnecessary
Provide Milk Price Security
Give You Peace of Mind

The UltraOptions program gives you a way to manage downside price risk when you’re marketing milk. We use the flexibility of put options to help you.

More Benefits

  1. This strategy gives you flexibility in your price risk management plan.
  2. It frees you from brokerage account requirements.
  3. The UltraOptions program allows farmers like you to capture more favorable prices if market prices increase.

When it comes to your floor price, UltraOptions is available in 25-cent price increments. Premium fees vary, and they depend on price levels secured, length of time to maturity and market activity.

UltraOptions Pricing Example

If lower Class III Price Announced
You purchase UltraOptions Floor Price at $16.50
Actual Class III Price $15.50
Amount below Floor Price $ 1.00
Actual Mailbox Price Above Class III $ 2.00
(Basis Above Class III Price)
Producer’s Mailbox Price
$2.00 Basis + $15.50 Actual Class III Price = $17.50

UltraOptions Value $ 1.00
Total Pay Price with UltraOptions $18.50

Does your dairy farm produce enough milk to use futures options contracts?

Sometimes risk management techniques are more difficult for smaller farms to use, because of contract sizes. Class III Milk trades in 200,000 pound futures and option contracts, which is equivalent to 2,000 hundredweight/cwt. For producers who want to take advantage of National Farmers’ pooling services, we help you by coordinating with other producers to fill contracts at a minimum of 25,000 lbs. apiece. It’s another way to market farm commodities together.

Whatever National Farmers dairy risk management program you use, we work with you to contract only up to half of your monthly milk production. We’re all about security for your farm.

Milk Risk Management Innovation Is Here

Options Floor and Ceiling Price Program Brings Balance

Balancing out the peaks and valleys in milk prices, especially the valleys, can open the door to a better farm life. And striking a balance between how well a milk risk management strategy protects revenue, and how much it costs producers, makes all the difference in your decision as a farmer to use that tool. National Farmers’ More Than A Floor options program delivers.

Establishing Milk Prices

As a dairy producer, you face many risks that affect your revenue and bottom line every year. So you pay close attention to your milk price and everything that affects it.

Monthly milk check prices start with the value of the products that the milk is used to make. This is referred to as end-product pricing or component pricing, because the milk check price in any month reflects the value of its various components four to six weeks earlier.

What this comes down to is, farm-gate milk prices are influenced somewhat by government programs, but are by and large determined by supply and demand forces. Because prices processors charge retailers, and retail milk and dairy product prices, aren’t highly regulated by the government, the marketplace sets the so-called farm-to-retail price margin.

Then there’s your profit margin. When it comes to your margin, the bigger the better, right? So, you want to do more to drive your milk price. We want to help you maximize that margin with More Than A Floor.

How More Than A Floor Works

With each contract, you receive the floor price, but you may also earn more than that in a range from the floor price up to the ceiling price established in each contract set. The contract sets cover three months. Premiums on your milk are added on at the end.

More Than A Floor Features

    1. Protects you with a known milk floor price
    2. Gives you a possible ceiling price for your milk
    3. Saves you cash with no initial cost of options
    4. Recommends participation at 50 percent of milk production
    5. Brings pricing choices farther into the future, to you now
    6. Contracts prices in three-month sets
    7. Uses options on Chicago Mercantile Exchange
    8. Lets you tack on your premiums, too

    With all those great features, you’ll gain more control over your mailbox price, and the ability to plan ahead and know where you stand. With this innovative program, we’ve helped many producers manage milk price risk in a practical way. We can help you, too. Contact us today and make your dairy operation more secure!

    Call 515.598.4683 or email wmoore@nfo.org.

Take Advantage of Futures Opportunities

Use dairy futures contracts and set the milk revenue pace

Manage your Class III milk price

What’s your dairy farm goal? Add a family member to the partnership? Update your facility? Increase the overall value of your operation? You have a future, and you intend to drive it. For farmers, knowing where you stand in commodity sales income means decisions are made with solid information, and that assures your overall financial perspective is accurate. It all comes down to predictable income. So you can move forward. Dairy producers, you can indeed know your base milk price months ahead of time with UltraFutures.

You can know your base milk price every month, because every month there’s a milk contract available to lock in revenue. At National Farmers, we’re your dairy profit connection, using the UltraFutures milk futures contracting program. We work with the Chicago Mercantile Exchange and our team of respected partners to assure your solid milk price is locked up tight.

UltraFutures Facts

    1. UltraFutures contracts with a minimum of 20,000 lbs. of milk, unlike other companies that require much larger contract sizes, because we can work with other operations to fulfill the 200,000 lb. requirement of the CME contracts.
    2. And the UltraFutures contract amount is adjusted in 5,000 lb. increments.
    3. But if producers intend to fulfill a whole CME contract, we can help with that, too.

    Using milk futures contracts brings choices

    Considering your breakeven price, expected basis and the futures price, National Farmers professionals will help you make decisions about UltraFutures contract opportunities. It’s your reliable strategy to maintain the most profitable milk margin possible, and protect your farm’s security.

    We’ll help you with important UltraFutures decisions and needs.

    1. Select which months you want to protect milk revenue.
    2. Consider how much milk to protect after weighing milk production levels and forward contract sizes.
    3. Factor in your breakeven level and basis.
    4. Contract a determined volume of milk for a particular month at a fixed price.

    Why would someone use risk management in a dairy operation?

    Take a look at this comment from the CME in its online educational material about dairy futures.

    The dairy markets are unique in that they react very dramatically to small changes in supply and demand. Extremely minor reductions in supply or increase in demand can send prices soaring within a few months, while the opposite may happen with slight increases in supply or decreases in demand. Against this type of market environment, activity in Dairy futures has increased significantly in recent years. Some of this market volatility is due to the U.S. government’s steadily decreasing involvement in the dairy support program.

    Using UltraFutures, you can transfer a portion of the price risk milk experiences to someone else. Using futures opens many doors, and producers have many questions about contracting requirements. Contact us today to find out exactly how to secure a base price months in advance with UltraFutures.