A price retracement is underway, but milk production remains strong. The hope is that demand will continue to grow. Meanwhile, look for opportunities to protect your milk and feed prices.
The bullishness and steady uptrend in cheese prices since the beginning of the year came to a screeching halt last week.
Cheese prices virtually fell out of bed as sellers of cheese overwhelmed the market. The block cheese price fell 33 cents over the past week to post the largest loss over the duration of a week since June 2004. Barrels followed, but the loss was not as great posting a decline of 26 1/2 cents. Cheese prices are now at the lowest level since late January.
Many are again questioning the validity of the sell-off, with some discussion surfacing again about market manipulation and ideas that daily spot trading should not be the driver of milk prices. Right now, this is the best indicator we have. It is a reflection of the market since buyers and sellers are going to do business as they see fit. A price outside of the realm of the market in the country is not going to last very long. Yes, the market could move outside of what is happening in the country, but buyers and sellers will step up to the plate when business has to be done.
Ideas were floating around again that milk prices were going to remain high and move significantly higher as the year progresses. After all, we are still in the first quarter of the year. So, the shock of a severe decline in price is hard to take. Milk check are becoming as volatile as the market, with March Class III and Class IV milk prices about to set a record high for a March price. However, April Class III futures indicate a potential decline of nearly $3.00 per cwt. if cash prices remain where they are.
International demand has been good and has been one of the mainstays of the market. Price weakness on the last Global Dairy Trade (Fonterra) auction, however, has turned the tide a little. Daily nonfat dry milk trading had weakened slightly from the high, but continues to hold well. Evidence of international price weakness and some indication that supplies are beginning to loosen a bit in the country may result in powder prices weakening along with cheese and, more recently, butter.
It does not appear prices will decrease significantly, but a retracement is underway. The extent of that retracement is difficult to predict. It certainly is a buyer’s market, with no need to outbid someone else to obtain desired product. One thing we do know is that milk production is not slowing down.
The February milk production report showed an increase of 2.0 % over a year earlier over all 50 states. Despite high feed prices, farmers continue to get more milk out of the cows. It is not that more money is being made, as higher feed prices are met with higher milk prices -- essentially resulting in the trading of dollar for dollars. However, more production seems to always be the result of higher milk prices.
Production per cow in February increased 21 lb. while cow numbers remained the same from January at 9.16 million head. Cow numbers are up 68,000 from a year earlier. Of the top 23 milk producing states, only five posted a lower production number than a year earlier. These states were: Illinois, Minnesota, Missouri, Pennsylvania and Utah. The top milk producing state of California showed an increase in production of 2.4% while Wisconsin was up 0.5%.
It will take a while for the production train to slow down. Current feed and milk prices will not cause this to happen. The hope is demand will continue to grow both domestically and internationally, improving overall milk prices. In the meantime, all we can do is sharpen the pencils and look for opportunities to protect milk and feed prices on dips -- and milk prices on jumps.
- February cold storage on March 22
- February livestock slaughter on March 25
- Commercial disappearance on March 29
- Agricultural prices report on March 30
- March class prices on April 1
- California Classes 4a/4b on April 1
- Dairy Products report on April 4
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.