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Know Your Market

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Dairy trading experts offer strategies and practical perspectives to optimize market performance.

Know the Opportunity Offered by $3.00-plus Run-up in Your Milk Price Average

Oct 13, 2012

After a good price run for fundamentals, indicators are now showing trend momentum and strength is fading.

Carl BablerBy Carl Babler, Atten Babler Commodities, LLC

Knowing your market is about monitoring price behavior and price change that provide your operation a marketing opportunity. Thus, I submit the following observations regarding the January through June 2013 Class III milk futures average price trend.

Current price drivers are as follows:

Fundamentals
• Cow numbers are declining from cyclical high.
• Cheese demand is in a seasonal strong price period.
• Dairy production margins are improving as the corn price has dropped $1.00 off its weather-market summer high.
• U.S. dairy policy is unknown since Congress is inactive.
• Global economies: China –slowing; EU member-nations facing financial breakdown.
• U.S. government faces year-end “financial cliff”; action required.

Technicals
• Price: upward trends are observed.
• The milk price has moved up $3.79/cwt., from $15.57 in May to $19.36.
• Block cheese price has moved up $.63/lb., from $1.46 to $2.09.
• The current average for period at $18.89 Class III futures is in the 87th percentile of the record high $21.67 Class III announced price.
• The trend line on the daily chart has broken to the down side.
• Relative strength showing negative divergence.
• 40-day moving average has broken to the down side.
• MACD shows divergence.

It has been a good price run for fundamentals as described. Indicators are now showing trend momentum and strength is fading. See charts below (Source: FutureSource).

Babler chart 1   10 13 12 copy

Babler chart 2   10 13 12 copy

Bottom line: Know the opportunity offered by a $3.00-plus run-up in your milk price average. Positions taken in milk must be matched to positions in feed as you look through the first six months of 2013.

Carl Babler is a principal with Atten Babler Commodities of Galena, Ill. Contact him at cbabler@attenbabler.com or 877-259-6087.

Risk in purchasing options is the option premium paid plus commissions and fees. Selling futures and/or options leaves you vulnerable to unlimited risk. Transaction cost used throughout this report includes both commissions and fees. Atten Babler Commodities LLC uses sources that they believe to be reliable, but they cannot warrant the accuracy of any of the data included in this report. Past performance is not indicative of future results. Unless otherwise stated the information contained herein is meant for educational purposes only and is not a solicitation to buy futures or options. The author of this piece currently hedges for his own account and has financial interest in the following derivative product mentioned within: Class III Milk.

 

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