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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.

Delaying Decisions Is Not Always a Good Thing

Jun 14, 2010

By Robin Schmahl, AgDairy LLC

 

Another bullet was dodged on the first of this month when the Chinese gave U.S. trade negotiators verbal assurance they would not enforce the deadline for dairy export certifications.

 

There had been some concern over what was to happen to dairy products that were en route to China prior to the June 1 deadline, but this concern has been put to rest. The Chinese indicated that if an exporter had a health certificate signed prior to May 31, it would be accepted no matter when it came to their ports. Shawna Morris, a trade policy specialist with the U.S. Dairy Export Council, stated that “the Chinese were not formerly changing the deadline; they don’t plan to enforce it at this time.”

 

Am I missing something here? It seems that if a deadline is set and it is not going to be changed, not enforcing it would be changing it, right? They are changing it from this date to another obscure date that no one knows about. This keeps it open for setting another date and enforcing it on a whim.

 

So, the USDA fortunately has more time to work out something with the Chinese before they implement the ban. Unfortunately, this dispute over health issues has been going on since 2007. Why has nothing been accomplished in three years? USDA seems to deal with things mainly when it becomes a crisis situation and then all hands are on deck.

 

As I understand it, other countries have taken care of the verbiage and requirements of the Chinese in order to keep trade open. However, it seems the USDA would rather just argue with the Chinese because U.S. dairy products are pasteurized, therefore, health issues regarding bovine TB and Brucellosis are not an issue. I think the issue is to take care of this and negotiate for the sake of our dairy farmers and preserving market share.

 

I applaud Cooperatives Working Together (CWT) for its effort in subsidizing cheese for export under its Export Assistance program. Since CWT reactivated this program on March 18, it has assisted in the exports of 36.1 million pounds of cheese, or approximately 903 truck loads.

 

This seems like a lot of cheese, but it’s not much considering the total cheese production in the country. This cheese has not yet all been shipped but is slated to be shipped from now through the end of the year. Nevertheless, it will keep that much out of inventory and hopefully support price somewhat. So, far this has had very little if any impact on price, but every little bit helps.

 

The current round of bidding taking place on the Herd Retirement program has not had any impact, and if pervious rounds are an indication, it will not have any.

 

Market prices will continue to move relative to supply and demand, or who is in the market buying or selling on any given day. This creates the volatility that we have become accustomed to. Unfortunately, this volatility and underlying price movement has been confined to a range for the first five months of the year, resulting in a Class III price average of $13.57/cwt.

 

It is not much to get excited about, other than it is quite a bit better than a year ago when it was $10.23/cwt. There were a few good opportunities to hedge milk prices at significantly higher prices during the later part of last year and the first few months of this year. Many, however, did not take advantage of these opportunities because the prevailing cry was, “It just has to go up”. I place some of the blame for this on the “seasonal” analysts.

 

There are a few dairy analysts out there who continue to hold to the cycle pattern and price seasonality, and base their recommendations accordingly. It did not make any difference what cow numbers, milk production, dairy farmer sentiment, economy, etc., were indicating. The cycle pattern indicated 2010 was to be a banner year with milk prices increasing dramatically after a year of very low prices just as it had in the past.

 

Seasonality indicated that milk prices were to jump by the middle to the later part of this year as buyers step up to the plate and purchase for end of the year demand. This is what everyone one wanted to hear and thus projections of $18.00/cwt. and higher milk prices were being forecast.

 

Underlying fundamentals, however, were not suggesting it was to be such a banner year, and those who could weigh the evidence with limited emotion could see a better year, but not a banner year. Those “great” price projections released via the printed and spoken word did a disservice to those in the trenches milking cows for a living. Thus, some good price opportunities were passed.

 

For these reasons, I am adamant at knowing costs and setting goals, then combining this with market fundamentals in order to protect equity. Whether this can be accomplished with straight options, option combinations, futures contracts or forward contracts, it needs to be done.

 

Upcoming reports:

-          July Class I price on June 18

-          The June Milk Production report on June 18.

-          The June Cold Storage report on June 22.

-          The June Livestock Slaughter report on June 25.

-          Commercial Disappearance on June 29.

-          The June Agricultural Price report on June 29.

 

 

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 (74 Comments)

Anonymous
6:57 I hear you. We were going to replace the 60 year old setup 5 years ago but didn't thankfully. We are still in the 60 year old setup and its falling apart more every day. Stanchions falling apart bad. Now can't even spend $20,000 to fix 17 broken sick cow stalls. What the heck is wrong with that? I am just as depressed as you. Even on medication for it but no medication can mask what is financially happening out there.
5:15 PM Jun 28th
 
Anonymous
We need to have a pricing system in place that returns a fair share of the consumers dollar back to the farm level.there is no doubt in my mind that if our prices go up 10% the processor and retailer would put their price up 12 %. It is a no win situation and the farmer is always on the short end of the stick. I have NEVER been more depressed with the dairy situation than this.To make matters worse 2011 prices our heading down and are currently $1.50 below cost of production. We built a new facility 3 years ago to replace a forty year old set up. After the disaster of last year and even forward pricing milk this year it is a no win situation. To go to work every day for the last 15 months and draw nothing out of the partnership and pay the house hold expenses on the wifes income is not my idea of a fullfilling life.It seems that everyone who we buy services from or sell product to makes a buck except the dairy farmer.You would think that a 25,000 lb average should float the boat but it does'nt under the current pricing system.Maybe the bank can run the place they sure as heck have been not in our corner thats for sure as they refuse to adjust interest rates or terms to make it cash flow. Well enough griping for now at least we have milk to drink !!!
5:57 PM Jun 24th
 
 
 
 
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