Many of you were invited to attend a session of the USDA Dairy Option Pilot Program the third week of July at one of five locations here in Ohio. A team of extension educators and USDA Risk Management personnel put on one-day programs in Ashland, Minerva, Wilmot, Williamsfield and Maria Stein, Ohio.
This DOPP program is designed to provide an opportunity for dairy producers to gain hands-on experience with the futures and options markets. The key aspect of the program is that the USDA/RMA will pick-up 80 percent of the cost of the educational opportunity, plus a $30 share of the broker’s commission.
Those who attended one of these meetings experienced an opportunity to work through a simplified method for determining a “target’” or planning, milk price. This method has been developed by Dianne Shoemaker, OSU northeast district extension dairy specialist, and Jim Polson, OSU northeast district farm management specialist. If you do not know your cost of production or a good planning price, this is an excellent way to find out (contact the OSUE Northeast District Office in Wooster, 330-263-3831, for a copy).
Creating a floor. After this exercise I explained the concepts of the futures market and the PUT option contract. With milk prices currently running very high for this time of year, I asked those in the audience to focus on using the DOPP program to put a price floor under the fall and winter milk prices.
That the current milk price will fall back by at least $2 per hundredweight is reasonably certain; the question is, when will the adjustment begin. With September through December prices riding the current hot weather market, now would be an excellent time to use the USDA program to place a price floor under these prices.
Having the USDA pick up 80 cents of every dollar makes it an even better opportunity.
During the afternoon session producers received the DOPP program rules and guidelines from Max Heflin, risk specialist with the USDA Risk Management Agency. Max is a retired dairy farmer himself and works out of the RMA office in Springfield, Ill.
Two Ohio-based brokers. The program was completed with a discussion on the topic of what to expect from your options broker and was conducted by Larry Holloway from Advance Trading out of Sydney, Ohio. Larry is one of two DOPP certified commodities brokers located here in Ohio.
The other Ohio-based DOPP certified broker, Vickie Holdren, AgVantage Marketing, located in Ashland, Ohio, provided additional insight at the Ashland and Wilmot meetings.
Why not try it? If you attended one of the meetings and are still trying to make that decision whether or not to participate, I would strongly suggest that you get signed up with the USDA and contact a broker.
Current fall milk prices ranging from $15.38 for September Class III to $13.32 for December Class III CME futures contracts are very good. Class III prices above the $13 level have only occurred one in five years over the last decade.
Now would be a good time to get a handle on your planning price and use the DOPP program to put a floor under these high Class III prices.
Who can participate? If you didn’t attend one of the five meetings and would to participate in this program, you still have time but will have to get crackin’!
You must meet the following conditions:
* your milk parlor is located in one of these Ohio counties: Ashland, Ashtabula, Auglaize, Carroll, Columbiana, Coshocton, Darke, Holmes, Knox, Logan, Mahoning, Medina, Mercer, Richland, Shelby, Stark, Trumbull, Tuscarawas, Wayne;
* you produce at least 100,000 pounds in a six-month period,
* have access to a computer and the Internet to access the DOPP training materials by computer and get formally approved to participate.
Here is what you have to do to use the computer method. 1: Contact either Dave Brunson or Linda Puls at the USDA/RMA office in Springfield, Ill.; 217-241-6600, extension 107 (Dave) or 102 (Linda). 2: Provide your name and email address. 3: After receiving a log-on ID and password, complete the educational module.
You must complete this process by Aug. 20. After that date, applications for the program will no longer be accepted.
Update on pool riding. If you have not read the latest issue of “The Milkweed” newspaper, you may wish to pick up a copy. In this issue there is a short analysis of the amount of dollars flowing from the Mideast Federal Order pool to the Upper Midwest pool over the period August 2000 through April 2001.
Those at “The Milkweed” put the cost to producers shipping to the Mideast pool at a staggering $45 million dollars over this period. This dollar amount compares directly with estimates that I have made and previously published in this column.
Keep in mind that their numbers are for dollars flowing only to Wisconsin producer milk pooled on the Mideast Order. If you include producer milk from other active states (as far away as Kansas and South Dakota), it is even higher.
While I have not computed the cost per hundredweight for the period March through July, I am fairly confident that you can use a conservative 60-cent per hundredweight loss on each and every 100 pounds of milk you ship as a very reasonable estimate.
Look at it this way. If you net, after production expenses, $200 per cow with a 20,000-pound production, your net is $1/hundredweight.
According to “The Milkweed” analysis, Wisconsin producers alone are taking 60 cents of this or 60 percent of your net return right off the top!
Call for an emergency hearing. Is help on the way? Possibly. The Federal Order 33 Mideast Market Administrator has processed a request for an emergency hearing on this issue. This request was made by Dairy Farmers of America, Michigan Milk Producers and Prairie Farms Cooperative.
You can obtain a copy of their proposal by writing to the Mideast Market Administrators Office, 7851 Freeway Circle, P.O. Box 30128, Cleveland, OH 44130. Be warned that unless you are familiar with the legal language of the federal order regulations on pooling having a copy may not be very useful.
The importance of the emergency hearing is that we will have the opportunity to implement a change in the federal order language that will make it less profitable to pool milk on Federal Order 33 without there being a bonafide reason to have that milk here in the Mideast Order.
The hearing date has yet to be announced, but look for it in either late September or in October. I will provide more information on the hearing process and the impacts of the proposal as I sort it out and make this available through your county extension agent.
Have a good summer!
(The author is a dairy marketing and policy state specialist with Ohio State University Extension. Questions or comments can be sent in care of Farm and Dairy, P.O. Box 38, Salem, OH 44460.)