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Common questions from new risk management seminar road tour

Published on 21 September 2010

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Producers across the country are voicing questions about risk management at a series of workshops offered by commodity marketing consultant Stewart-Peterson. The seminar road tour has previously stopped in three states and will be stopping in four more in coming months. Here’s a snapshot of two producer questions from recent workshops and answers to them by the company’s advisers Mark Ludtke (top right) and Steve Schalla (bottom right).

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From Eau Claire, Wisconsin:
‘How important is technical analysis when analyzing the dairy markets?’
“Technical analysis – the study of market price movement to predict what prices might do – is helpful to a point. It’s a good idea to use tools like technical analysis, as well as fundamental analysis, to formulate possible scenarios. We think it is even more important to strategize what action needs to be taken when any given scenario begins to unfold.

"Producers need to familiarize themselves with useful strategies and the tools they will use when the market moves, so they are not making decisions under pressure or missing opportunity because they were not ready to take action.

“We tell our clients that market analysis and formulating a market outlook is a small portion of the marketing approach. More time should be spent on the planning, strategy and execution. It’s easy to burn up time trying to guess where the market will go, which is nearly impossible to predict on a consistent basis. Furthermore, if you hinge all your marketing decisions on one market outlook and you’re wrong, you end up unprepared when the market doesn’t behave exactly as you predicted. So, use technical analysis as a tool and focus on strategies that prepare you for whatever the market may do.”

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From Grand Rapids, Michigan:
‘If grain prices keep going up, what impact will it have on milk prices?’
“Grain prices have seen an incredible run higher since the Fourth of July, with support from concerns about global grain supplies following droughts in Russia and Europe. With strong demand predicted both domestically and abroad for U.S. grains over the next year, any cut in U.S. production could cause strong grain prices to continue into 2011.

“When considering this potential scenario in relation to milk prices, first note that while statistically there is a positive correlation between milk and grain prices, the relationship is fairly weak and not nearly strong enough to conclude that if grain prices stay strong that milk also must remain at higher levels. The opposite also is true – if grain prices move lower, it does not mean that milk also must go down.

"Both of these markets have their own fundamental reasons to move higher or lower. Think back to 2009 when milk was historically low but grain prices very strong. For some producers the milk check hardly covered the feed bill! Consequently, we work to establish dynamic strategies for both milk and inputs – corn, meal or other proteins, fuel and interest rates, always looking for the best price the market will offer on both sides of the equation. If you are not prepared to take advantage of the best opportunities in each market, you can’t make up for the times when the profit margin is too slim for comfort, or even negative.

“So, rather than make assumptions about where the market might go, be prepared for the opportunities or risks provided by each market so you can achieve the best bottom line position possible for the long haul.”

For future workshop locations, visit www.stewart-peterson.com or call (800) 334-9779. PD

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