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AgDairy Market Update

RSS By: Robin Schmahl, Dairy Today

Robin Schmahl is a commodity broker and owner of AgDairy LLC, a full-service commodity brokerage firm located in Elkhart Lake, Wis. He provides dairy market insight.

A More Bullish Attitude Emerges for World Dairy Demand

May 03, 2010

By Robin Schmahl, AgDairy

 

Class III milk futures in May, June, July and August contracts have exhibited strengthening prices since mid-April. This stands to reason as anticipation grows for stronger dairy prices.

 

World prices are being watched very closely. Continued strength in the butter price has resulted in traders liquidating previous sold positions (shorts) to reduce their exposure. This results in steadily improving futures prices and adds extra price premium in the market. That is, extra price premium relative to the current Class III price calculation using the Federal Order formula. The updated weekly NASS prices for nonfat dry milk and whey, and the closing CME Group spot prices last week for cheese and butter, equate to a Class III price of $13.08.

 

May Class III futures have run out of steam with half of the contract already priced. Futures will begin to flat-line and trade within a tight range for the month. This has already begun the process of converging with the underlying cash markets by decreasing slightly over the past few days. Most of the adjustment in price for this contract will result from weekly NASS prices and very little from daily cash trading.

 

June, July, and August futures contracts are anticipating continued higher cash prices as traders watch global markets very closely. Later-month contracts have not been as exciting, with much of the price movement confined to a virtually sideways range. However, prices are returning to the top end of the range as the attitude become more bullish.

 

Overall demand from the world dairy market is solid. Some improvement in world economies brought consumers back to the market.

 

The demand leader is powder. China has been importing large volumes of Whole Milk Powder (WMP) and Skim Milk Powder (SMP) over the past year. This is due to a combination of heavier culling of their dairy herd due to the melamine scandal. It is estimated that about 20% of their herd was culled due to the loss of confidence by their consumers in the domestic milk supply.

 

Now, lest we get too excited over this, much of their imports have come from New Zealand. In fact, U.S. exports to China are primarily whey protein concentrate, sweet whey and lactose. In 2009, exports of whey protein concentrate totaled 47,239 metric tons (MT), sweet whey 46,313 MT and lactose 49,795 MT. Skim milk powder exports to China were only about 6,000 MT, with cheese exports about 2,000 MT. Yes, every little bit helps and there is a lot of room for growth.

 

The proverbial wrench in the works had been the recent announcement by China that they were going to ban U.S. food-grade dairy imports by May 1. They had changed their stance on a previous health certificate agreement made in 2007. This certainly was not good news last week, but it did not have any noticeable affect on cash or futures trading. On Friday, however, they granted a 30-day extension giving both governments until June 1 to work out a new health certificate agreement.

 

We have moved to a global marketplace and need to cater to the demands of consumers or lose market share. This can be a hard pill to swallow, but one that is going to shape our business going forward.

 

There certainly seems to be light at the end of the tunnel. An improving global economy and improving world dairy prices will do wonders for domestic milk prices, but it may take some time for higher prices to materialize.

 

Fall contracts already have a $2.00 price premium factored in. Increasing milk production, along with increasing cheese stocks, may be a limiting factor until some inventory clears, which may take the rest of this year.   

 

Upcoming dairy reports:

 

-          Fonterra Auction on May 4

-          California Class I price on May 10

-          World Agricultural Supply and Demand report on May 11

-          Monthly Milk Production report on May 18.

 

 

Robin Schmahl is a commodity broker and owner of AgDairy LLC, a full-service commodity brokerage firm located in Elkhart Lake, Wisconsin. He can be reached at 877-256-3253 or through their website at www.agdairy.com.

 

The thoughts expressed and the data from which they are drawn are believed to be reliable but cannot be guaranteed. Any opinions expressed are subject to change without notice. There is risk of loss in trading and my not be suitable for everyone. Those acting on this information are responsible for their own actions.

 

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COMMENTS (131 Comments)

Anonymous
A herd management program for eradication of infection, which may take four years, requires major changes. The average infected herd contains 38 to 42 percent infected animals (Groups 1, 2 and 3). Culling of infected animals in Groups 1 and 2, and ideally also Group 3, is necessary. Replacement calves may be vaccinated.

Because problems can arise with subsequent interpretation of the tuberculosis skin test, vaccination is not allowed in some states. Vaccine usage is only permitted by state regulatory veterinarians in herds which are found positive for Johne's disease and negative for tuberculosis. The vaccine can also produce local reaction at the injection site resulting in a firm nodular mass. Vaccination will unfortunately not protect against a massive infection. Vaccinated animals do not represent Johne's-free status. In fact, they represent potential carriers. Vaccination is part of a policy designed to force farmers to institute appropriate management practices for control and eradication of the disease.
7:40 PM May 17th
 
Anonymous
HAHA. Cows don't know whether they are registered or not. So it really doesn't bother me that it came from a registered herd or not, because Johne's isn't exclusive to one or another. You could have just have easily bought the Johne's from a commercial cow and you'd be on here blasting away at them instead. The thing is this: a) I never called you ignorant, I said you walked into a situation that you weren't prepared to handle - I know how that feels, especially when we got Salmonella in our water supply. But this statement concerns me "we were tracking that manure on our boots all over the youngstock feed unknowingly" - I don't know how you track manure into feed unknowingly - I mean if sh*t is on your boots and you walk in the feed, that's a problem - but its not just a problem for Johne's - how about every other disease in the world as well. E.coli, Salmonella, parasites, etc. So to me keeping manure out of feed isn't exclusive to just Johne's management, its pretty darn important for everyday. Now, I don't expect everyone to be perfect, sometimes manure will get in the feed by accident, but if you try, it is easy to not let happen. Obviously when herds have Johnes management changes to keep it out, or controlled. But many of the same management should be done anyhow - like calve cows in a clean, dry pen. Keep manure out of feed and water. House youngstock away from mature cows. Don't allow direct contact of cows with manure. Etc. So while management, especially colostrum, has to change, there are many things we as dairy farmers should be doing anyhow. I am not trying to piss you off. Honestly. Sometimes getting pissed off isn't a bad thing anyhow...http://www.johnes.org/handouts/files/Test-Johnes1.pdf
7:27 PM May 17th
 
 
 
 
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