Feed cost is the most important and expensive input cost on a dairy farm. For a combination of reasons, feed costs have risen sharply since the fall of 2020.
- At Central Grain in Sauk Centre, June corn prices are around $6.70 with a positive $0.10 basis, with a higher positive basis for late summer.
- Soybeans are around $15 with a negative $0.40 basis.
These are very competitive bids. Futures prices this fall are currently several dollars per bushel lower than nearby contracts. If you have any excess grain, consider contracting it for sale this summer.
Dairy Margin Coverage with the USDA covers the margin between milk prices and feed costs. This program has paid out in 2021 due to the higher feed costs.
Historical trends have corn and soybean prices declining after July 1 and hay prices peek in November and December which should help farmers needing to purchase additional feed. Will that happen in 2021? The answer depends on what happens with the weather. If, by July, the crops look good and good fall yields are likely, grain prices will likely decline. If the drought continues, grain and hay prices will rise.
An alternative for dairy farmers who need to purchase corn or corn silage in fall would be to buy call options. A call option acts more like an insurance policy with a known cost: the premium. If the corn market declines, the loss would simply be the costs to buy the call. If corn prices continue to increase, the premium cost of the call is still incurred, and the call can be exercised at the strike price.
Planting season is mostly wrapped up, do you have enough acreage to harvest adequate tonnage of hay and corn silage for your herd so you do not have to buy as much? Most farmers do buy some minerals, supplements and other feed inputs. So reducing all feed inputs to grown crops is difficult.
Growing enough of your own crops is one way to help control feed costs. Looking at other options to buy feed — from neighboring farmers, buying one cutting of hay or part of a corn crop — or watching the markets closely also can help control costs.
Read more about futures options and controlling feed costs on the ABM blog.
