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Know Your Market

RSS By: Dairy Today: Know Your Market, Dairy Today

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

The Antidote for Uncertainty

Jan 30, 2012

Although dairy’s fundamentals point to volatility and uncertainty in 2012, don’t procrastinate in your marketing program. Focus instead on consistency to build your best average price.

 
WDE D10106a DoorninkBy Liz Doornink, Stewart-Peterson
 
Liz Doornink is a new contributor to Dairy eUpdate. Liz takes the place of former blogger Steven Schalla, who has decided to pursue a career opportunity with his family’s dairy farm in Wisconsin. Liz brings her experience as a former dairy farm owner to her new career with Stewart-Peterson Inc.
 
There is much talk about the “three-year milk cycle” and whether the most recent milk price downturns indicate that we’re heading into the downturn that history would suggest is due. The bottom line is that from where we sit, uncertainty is the only sure thing.
 
Let’s look at the mixed bag of fundamentals:
 
  • Milk production -- December milk production increased by 2.5% year-over-year. That is the fastest year-over-year growth in milk production since November 2010. For all of 2011, milk production grew at an average pace of 1.8%. That is the second slowest annual rate of growth since 2005.
 
  • Cow numbers -- For 2011, a total of 80,000 cows were added to the U.S. herd. Of those, 67,000 were added in the first half of the year and only 13,000 in the last half of the year.
 
·         The December Livestock Slaughter report showed 262,000 head removed from the herd. This is the second consecutive month that slaughter numbers have increased after bottoming out in October. This amounts to a 3.6% increase month-over-month but a 1.1% decrease year-over-year. This is the first time since July that monthly slaughter has lagged behind last year’s numbers.
 
  • The December Cold Storage Report showed total cheese stocks up from November, a seasonal rebound. Total cheese stocks for December were estimated at 981.317 million pounds, up 1.3% from the previous month but down 6.4% from the previous year. This is the second consecutive month total cheese stocks have fallen 5% or more year-over-year. And, this is the first time since July that stocks have increased on a month-to-month basis.
 
·         Exports – November was the third best export month of 2011. Year-over-year exports increased by 10.4% compared to last November.
o   Total cheese exports increased 18.80% versus the previous month and 52.4% versus last year.
o   Total butter exports increased 37.30% versus last month but were down 10.60% versus last year.
o   Whey exports increased 15.20% versus last month and 10.70% versus last year.
 
So, the total export picture for 2012 is mixed. Domestic prices at a discount, coupled with international prices at a premium, lend support to prices. A higher trending U.S. dollar is a negative when paired with uncertain global demand.
 
  • Grain prices still being historically high lends support to the milk market, but if grains lose footing, support would falter.
 
If you’d like to see the charts depicting all these fundamentals, check out the “Dairy Today Market Week in Review.”  http://www.agweb.com/livestock/dairy/multimedia/dairy-market-week-in-review/.
 
All of this points to volatility and uncertainty for 2012.
 
What to do?
 
Uncertainty often leads to procrastination. Yet when we look at how we manage our operations as a whole, most dairymen operate by the philosophy of continually moving ahead and making incremental improvements.
 
When it comes to marketing, consistency is what we’re discussing with our clients right now.
  • Keep capturing value when it is offered.
  • Set downside stops that will act as triggers to take action.
  • Then be disciplined to act on those stops.
 
Consistency is the antidote to uncertainty. We strive for consistency in the other aspects of our business, and marketing is no different. When we look at what really improves our bottom line, it is consistency that builds the best possible weighted average price over time. (We have data from the last seven years, the most volatile in milk prices history, which shows this.)
 
If you’re afraid of making a mistake, you’re not alone. I’m talking with many producers right now who are procrastinating with marketing. I got into this business because I believe that marketing made a difference for my own dairy operation. And now I’m glad to be a part of Dairy Today’s “Know Your Market” blog so I can share my experiences and listen to your questions.
 
Please feel free to contact me with your questions, and I’ll write about them next time.
 
Liz Doornink is in Dairy Business Development for Stewart-Peterson, Inc. Liz can be reached by calling 800.334.9779 or at ldoornink@stewart-peterson.com.
 
The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Neither the information presented, nor any opinions expressed constitute a solicitation of the purchase or sale of any commodity. Those individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures trading involves risk of loss and should be carefully considered before investing.  Past performance may not be indicative of future results. Any reproduction, republication or other use of the information and thoughts expressed herein, without the express written permission of Stewart-Peterson Inc., is strictly prohibited. Copyright 2012 Stewart-Peterson Inc. All rights reserved.
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