Milk Price Potential Limited
Aug 31, 2009
By Robin Schmahl
Milk prices for the remainder of the year are looking a bit more positive. In fact, the August Class III price will be announced on Friday and should be the highest price so far this year. The futures market is anticipating an August price of $11.22. This will not put the mailbox price in profitable territory, but will be better than what we have had.
It certainly is taking longer for higher milk prices to materialize than what was anticipated earlier this year. It was expected the herd reduction efforts by Cooperative Working Together (CWT) would tighten milk supply in conjunction with normal culling. However, this has not had the desired impact as production per cow has increased and demand has not picked up as much as projected.
Cheese and butter in cold storage continues to accumulate. The USDA’s July “Cold Storage” report showed American cheese stocks at 626.2 million pounds, the highest since 1986. Total cheese stocks were 982.5 million pounds and the highest since 1984. Butter stocks at 264.0 million pounds are not burdensome, but showed the first increase of stocks in July since 2004. Seasonally, butter stocks should be declining. Supplies are readily available and with inventories at these levels, it will be difficult for prices to rally significantly. Weekly cold storage reports suggest August inventories may begin to show a decrease, but this report is not as accurate due to the nature of data collection. The weekly report only surveys select storage centers across the country.
World prices have a large part to play in U.S. milk prices. World cheese prices have been lagging the increase in U.S. prices, resulting in continued interest in importing. According to the Foreign Agricultural Service, cheese and curd imports increased 7.7 million pounds or 30 percent, during the month of June. Cumulative imports for the first half of the year were 2.1 million pounds, or one percent higher than the previous year. This is adding insult to injury. Now, we need to realize that some varieties of cheese will always be imported, but when it is cost effective for companies to import versus purchasing from domestic suppliers they will many times do it. The USDA estimates imports to rise slightly in 2010, according to their latest “Livestock, Dairy, and Poultry” report, while exports are expected to continue to decline compounding the problem. They also expect milk production per cow to partially offset the reduction in herd size limiting the impact of overall production decline. Feed costs are expected to decline allowing for continued strong milk production potential.
The year ahead is full off uncertainty and much will be determined by the economic situation. An economic recovery will do a lot for improving milk prices. As consumer confidence rises so will demand. We are not out of the woods yet, but there are some signs of improvement.
Upcoming reports to watch for are the California 4a/4b prices on September 1; the August federal order class prices on September 4; the World Supply and Demand report on September 11; and fluid milk sales on September 11.
--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 Web site at www.agdairy.com.
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