With rising input costs, volatile milk prices and the ever-changing geopolitical world, managing commodity prices is not easy, but it can be done to help you protect your margins. No merchandiser anywhere holds a crystal ball that will guarantee the lowest price every time, but we can help you evaluate contracting strategies to manage your price risk and increase the profitability of your operation.
Let’s look at the “why” and “when” as it pertains to commodity price risks for your operation. In particular, this article will focus on soft feed commodities (such as canola and soybean meal), fiber sources (such as corn gluten feed and soyhulls) and more.
Why
Before we identify when to contract, we first must understand why contracting may or may not be right for you. On the surface, the major benefit of contracting is to secure the supply of a particular commodity at a given price. This is especially true during supply challenges. For example, we have seen significant supply shortages for several ingredients this year; canola meal has been the most challenging. Supply shortages happen for various reasons but ultimately result in increased values during tumultuous times.
Some will argue that having a contract in place doesn’t guarantee you the product. Indeed, it is hard to guarantee anything 100%. However, during supply issues, most reputable suppliers will prioritize customers with contracts over those without.
Reflecting on early 2026 headlines, we saw crude oil skyrocket to more than $120 per barrel and crash back down into the $80s in one 24-hour span. This brings us to the other reason producers contract: to lock in their input costs. Volatility occurs for every commodity, and contracting helps mitigate those price risks.
As you can see in the soybean meal futures chart (Figure 1), in mid-June 2025, the EPA released the first renewable diesel projections for 2026, resulting in soybean oil values increasing and soybean meal futures decreasing (yellow circle). Conversely, when President Trump “struck a deal” with China for soybeans, soybean meal rallied (blue circle). After that, the market was overbought and turned bearish (red circle). During this span from June 2025 to February 2026, the low soybean meal board price was $282.70, and the high was $335.80. Those swings can significantly impact profitability at the farmgate if exposed to the market.
One final why that needs to be highlighted is margin protection, which is also related to the when discussion. If you use milk marketing tools to protect revenue, then contracting your commodities at the same time can help lock in profitability. If not, then you are still exposed to margin risks.
When
Now we will dive deeper into the more difficult aspect of contracting: when. Again, no one holds a crystal ball. However, there are some time frames when, historically, most trading takes place.
First, let’s consider fiber sources such as cottonseed, corn gluten feed, soyhulls, etc. Historically, these ingredients have been contracted pre-harvest. Once harvest is complete, the true size of the crop is realized, and that can significantly impact the value of the crop, especially if it is smaller than expected. Additionally, demand for many ingredients ramp up as you head into the holiday season, resulting in higher prices and potential supply shortages. Securing your needs for these ancillary ingredients prior to or right at harvest has historically been positive. This does not mean a producer will hit the low every year, but it’s been net-positive for the bottom line more times than not.
Next we’ll consider protein sources. Because soybean meal and canola meal are tied to global trades, the historically good times are much harder to identify. Although a large portion of protein sources are contracted during the summer and fall months (similar to the high-fiber commodities), this is not always the best time to contract. If a producer becomes overly focused on hitting a home run, they may miss out on opportunities that present themselves throughout the entire year.
Cash prices consist of two components – basis value and futures price. Both components of the cash price will present opportunities to contract, but not always at the same time. For example, basis values at local processing plants historically turn bearish during and immediately after harvest. This is because the processors have an ample supply they must work through.
Conversely, scheduled maintenance downtime at the plants will undoubtedly cause basis values to strengthen. As such, if your strategy for proteins includes open positions throughout the year, be cognizant of when those processing plants will go down for maintenance. It is wise to contract your needs prior to those scheduled downtimes.
Lastly, the futures market for soybean meal on the Chicago Mercantile Exchange (CME) can sometimes seem like the Wild West. As noted above, various current events can significantly alter the futures price. The funds (institutional investors and funds that actively manage money for clients) that buy and sell the commodity probably alter these values the most. Knowing this, some technical tools can be used as an indicator for future price movements.
Figure 2 is the same chart as before, but with a couple of indicators included to help identify extreme values. Simply speaking, when the market is overbought, it could be an indicator that the market might turn bearish. When oversold, the market might turn bullish. The black arrows illustrate that the market was overbought and then turned bearish with values receding. The green arrow illustrates the opposite; the market was oversold, indicating a potential bullish trend for higher values, which occurred.
Monitoring and identifying when the market is overbought or oversold can help indicate the futures price could correct itself. However, that does not mean the market will do so immediately. Experienced merchandisers can provide insight into these market trends that you can use to make informed contracting decisions.
Summary
Trying to predict the low or the high in the commodity world is impossible and extremely risky. Taking a critical look at your operation and committing to the why will help you develop strategies to tackle the when part of the equation. At the end of the day, your commodity marketer should work closely with you to identify different strategies to mitigate risks and ultimately increase profitability.
