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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.

World Dairy Demand Provides Plenty of Opportunity

Aug 30, 2013

While domestic weather conditions and milk production command attention, providing quality dairy products to a hungry world market should be the focus.

A new fiscal year is fast approaching for the dairy industry, and with it comes a change to monthly milk production reporting.

The National Agricultural Statistics Service will reinstate reporting of cow numbers and milk production per cow beginning in October on the monthly Milk Production report. However, this more complete reporting will be quarterly and not monthly as it had been prior to April when it was suspended to meet budget reductions required by sequestration.

Initially, monthly milk production reports were to be discontinued altogether, but fortunately common sense prevailed giving us the information of pounds of milk produced. This was at least better than nothing. On October 21, the industry will again see cow numbers and production per cow, but only on a quarterly basis. Again, this is better than nothing. What the industry needs is a monthly reporting of this information as it had been prior to sequestration. But life goes on and we will do the best with what we have.

This brings us to the subject of milk production. Milk production in July was stronger than anticipated, but really not much of a surprise when comparing to similar weather last year. Once the market digested and realized overall production was not affected as much as anticipated, cash prices and dairy futures declined.

Recently, the market has exhibited similar strength due, in part, to the recent hot weather again being experienced. This bout of hot weather is not expected to last as long as the duration during July, but nevertheless reduced milk receipts at a time when greater demand of fluid milk for school systems is strong. This too is not expected to last long and may have minimal impact.

Many dairy farmers have been taking advantage of reasonable replacement heifer prices to fill the empty stalls in barns that were left empty as a result of heavy culling last winter and spring due to high feed prices and feed shortages. Feed is now more abundant in many areas, making less expensive feed prices.

Class III milk futures contracts in 2014 already anticipate lower milk prices. If a killing frost comes late this fall, and the nation harvests the corn and soybean crop the USDA estimates, there is strong possibility milk prices next year will be lower than currently trading in the futures market. This may not be all that bad if the income-over-feed cost improves. Greater availability of milk for bottling and manufacturing will allow the U.S. to continue to improve world market share.

World dairy demand has increased dramatically in recent years, with U.S. dairy exports topping $5 billion for the first time in 2012. Exports have reached a record high of $3.17 billion for the first six months of this year, a 15.5% increase over the record pace set last year for the same time. During the same six months imports of dairy products declined 0.67% from a year earlier.

For the first time, the value of exports was more than double the value of imports. Not surprisingly, the leading category was nonfat dry milk with the value of export increasing by $196.4 million, up 26.9% to a total of $927.1 million. The leading category on a percentage basis was fluid whey at $6.9 million, up 604.8%.

Gaining world market share is a priority. Current U.S. prices are competitive on the world market and, with the recent Fonterra incident and previous Chinese dairy product incidents, greater interest has been shown in U.S. dairy products. Providing quality dairy products to a hungry world market should be the focus.

Upcoming reports:

- Global Dairy Trade auction Sept. 3 
- Dairy products report on Sept. 4
- Dairy exports on Sept. 4
- Federal Order class prices on Sept. 4
- World Agricultural Supply and Demand report on Sept. 12

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. This material has been prepared by an employee or agent of AgDairy LLC and is in the nature of a solicitation. By accepting this communication, you acknowledge and agree that you are not, and will not rely solely on this communication for making trading decisions. Hypothetical or simulated performance results have certain inherent limitations. Simulated results do not represent actual trading. Simulated trading programs are subject to the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.

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