Spring is in the Air…

Winter seems to have come and gone. This last winter was a long and hard one, especially on the markets. With that, spring is in the air along
with a fresh new start. The markets are trying to be representative: We have seen 6 days of either stable and/or higher financial markets.
Commodity markets have stabilized and have shown some signs of new life. For example, corn is trying to post its seasonal rally into April,
energy markets posted seasonal lows in February and are trying to work higher, while cheese prices have held support and have now worked
back towards $1.30. Looking forward things seem to be more optimistic. With Class III Futures trading upward of $15.00 this is representing a
required movement of cheese prices towards the $1.70 level. Is this the silver lining of the storm clouds? We would hope. But, let’s be
realistic. We are in the midst of an economical downturn, unlike the ones of the 70’s and 80’s.

Is the dairy market giving us a glimmer of hope? Risk management is not about hope, but more about reality. Reality is if the forward curve of
Class III milk prices offered are at or above profitable levels into the future, i.e. $15.00 plus milk prices, cows will not be killed, dairymen will not
stop milking cows, and supply inventories will continue to build. Cows and production need to be killed in order to support $15.00 milk. Please
see the chart below.

In this era of financial uncertainty, marketers need to think different, act different, and hedge different. This is a time of surviving and
mitigating risk, but still being on board in case things do change for the better. What strategies work best with this period of time?
1. Sell cash milk and/or cheese based contracts and reown with a call strategy.
2. Purchase milk puts to cover the downside.
3. Utilize calls to cap feed cost.
4. Purchase feed and purchase puts.
The key is to be hedged, stay hedged, and hope that prices work higher. But if everyone’s hope is not realized your business is covered.

Current Opportunities
Milk Puts
Purchase July thru December $13.00 puts @ 32 per month.
Purchase July thru December $13.50 puts @ 45 per month.

Sell Milk
Sell July thru December milk @ $14.83 and purchase a $16.00 call and sell an $18.00 call for 39 cents per month.

Fence Strategy
Purchase July thru December milk $14.00 put and sell July thru December $16.00 call for even money, net premium zero.