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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.

After Dairy’s Good 2013 Year, What’s Next?

Jan 06, 2014

While reduced feed costs and good milk prices look promising, it's unclear how potentially higher milk production, feed quality issues and exports will play out.

It has been a very good end to a year filled with much emotion. Exceptionally high feed prices were present earlier in the year with increased anxiety as planting delays were prevalent. Corn prices over $7.00 per bushel, soybeans at $15.00 per bushel, and soybean meal over $450.00 per ton were being traded on the futures market in early last year.

The milk/feed ratio began 2013 at 1.57 with an income-over-feed cost of $7.22 per cwt. Dairy producers were struggling with tight margins and the potential for tighter margins if crops would not be planted or yields significantly impacted. Despite 8.3 million acres of prevented plantings, areas plagued with late planting and areas suffering from drought, genetics, better weather and a late fall was of great benefit to crops. The result was a corn price that was $2.56 per bushel lower at the end of 2013 compared to the beginning of the year. Soybean prices declined $1.30 per bushel with alfalfa hay prices down $30 per ton. What was initially feared as a disaster turned out favorably, improving profitability.

Milk prices improved with an All-Milk price in January 2013 moving higher to end the year at $21.80 despite record milk production. Demand has been good with exports significantly higher. The hottest dairy product of the year was nonfat dry milk, with very strong prices during the last half of the year. Grade A nonfat dry milk spot price increased from $1.73 per lb. on July 1, ending the year at $2.06. The AMS weekly average price closed the year 46 cents per lb. higher than the beginning of the year.

International demand has been strong and it appears as if that will continue. However, price may be at a level at which there is some buyer resistance while at the same time more product is showing up at the daily spot market. The average Class III price in 2013 was $17.99. The average Class IV price was $19.05 and the average All-Milk price was $20.00.

The market has not exhibited the usual decline into the end of the year. Cheese prices remain supported, pushing to price levels last seen in early November 2012. This is causing as much excitement as it is causing some concern. Excitement stems from the idea that exports will remain strong with milk supply not overwhelming the market. Concern stems from the possibility of a price void developing under the market. Once current buyer interest is filled, price weakness could send buyers to the sidelines. There have been a few reports from the Central region of the country of cheese orders slowing. This has not yet caused a back-up, but it’s something the industry is watching.

The beginning of 2014 looks very promising with reduced feed prices and good milk prices both actual and projected by the futures market. Impact of the relationship that generally exists between corn and milk has not yet been seen. Will this historical relationship become a greater factor as time moves on? That depends on the potential for increased milk production once most cows transition into a new lactation and feed quality issues are balanced. Exports will also play a large role in prices. We have another year before us, and along with it will come continued challenges and hopefully continued profitability.

Upcoming reports:

- Global Dairy Trade auction on Jan. 7
- World Agricultural Supply and Demand report on Jan. 10
- California Class I price on Jan. 10

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. There is risk of loss in commodity trading may not be suitable for recipients of this communication.

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COMMENTS (1 Comments)

CHRISTOPH - FREDONIA, NY
All of the farm neighbor's I have been Talking with are saying 2013 was a very poor year. So who is spreading the propaganda that dairy had a good year in 2013. Maybe the one's who benefited the most processors and Co-Op management and CEO's
8:24 AM Jan 7th
 

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