Jul 24, 2014
Home| Tools| Events| Blogs| Discussions| Sign UpLogin


September 2013 Archive for 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.

Tight Milk Supply – Reality or Perception?

Sep 30, 2013

Increasing milk output is competing with declining dairy product stocks and booming export demand. But as corn growers know, you can’t always predict where prices will head.

August Milk Production and Cold Storage reports were awaited with much anticipation. It was expected that milk product would increase and inventories would decrease. The extent of the milk production increase was a surprise. U.S. milk production increased 2.6% from last year despite the hot weather experienced during the month. The late summer hot spell and the resulting decrease in milk production had many thinking production would rise very little. But dairy farmers are resourceful and efficient and able to get milk out of the cows even under adverse conditions.

This brings us to the next idea that has been floating around in the market, which is the many reports indicating tightness of milk supply. With production above last year and cheese and butter inventory also higher, one has to wonder why manufacturers indicate milk supply is tight. It seems like it is a perception due to the fact that bottling demand is using sufficient quantities of milk, resulting in the available manufacturing milk supply requiring a premium to purchase. There have been reports of premiums upwards of $3.00 for available milk. This does not work well for many manufacturers when prices are at current levels. Plants would like to keep production schedules full and supply buyers with product. Obviously, tighter milk supply will increase price, but all indications are that demand is not greater than last year, otherwise inventory would be declining at a faster rate.

Butter is the prime example of tightening supply, with August inventory 34% higher than the previous year. In July, stocks were 26% higher; 33% higher in June; 24% higher in May; 22% higher in April; 22% in March; 21% in February; and 21% in January. If this pattern holds, stocks could end the year significantly higher than last year. Cheese is not quite the same but somewhat similar. Making the same comparison we can see that cheese stocks have actually been more stable. Total cheese inventory in August was 5% above last year. In July stocks were 5% higher; 5% higher in June; 8% higher in May; 4% higher in April; 5% higher in March; 4% higher in February; and 1% higher in January. Even though stocks are declining, they are declining at a slower pace than last year.

Export demand is improving as U.S. prices remain competitive with world prices. This certainly is good for keeping some support under market prices. My concern is what will happen when milk production begins to improve seasonally. Will demand be met with sufficient left-over and further limit inventory reduction?

I have made these comparisons to drive home the idea that we must be careful with what we read and well as the conditions we see from our back doors. Grain prices are another example. Many farmers in the country held off marketing their corn this spring when price was higher as they watched and read the news of the impending doom of the crop. Late planting, prevented planting, too much rain, not enough rain, potential frost, etc., gave many the impression corn prices were going to remain high. These same farmers are lamenting the fact they did not forward-contract more and indicate they will store as much as they can and hope for higher prices. We must keep our farming operations in perspective and make true business decisions for the good of our chosen occupation.

Upcoming reports:

- September Agricultural Price report on September 30, 2013
- Global Dairy Trade auction on October 1
- August Dairy Products report on October 3
- World Agricultural Supply and Demand report on October 11

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.

Will Lower Corn Price Mean Lower Milk Price?

Sep 16, 2013

USDA’s projection for a big corn crop and the potential for lower corn prices was music to the ears of dairy producers. But increased milk production will need increased demand or lower prices will ensue.

High feed prices have been difficult to deal with over the past year, but that should change. USDA surprised most everyone by raising both corn production and ending stocks this year, renewing projections for corn futures to fall to $4.00 per bushel or below. This is a hard pill to swallow for grain producers as sights were set on high prices again this year. Early wet weather and delayed planting was thought to have a significant impact on production. It has been a race against time to accumulate sufficient growing degree days before a killing frost. Current weather forecasts do not indicate a frost in much of the country before the end of September.

Unusually hot weather in August along with dry weather earned the term "flash drought" and was thought to have hampered corn ear fill. The hot weather was good for accumulating heat units, but potential production was reduced as cobs did not fill out properly in some cases. Test weights are expected to be lighter this year. Yet even with some problems ending stocks will more than double.

USDA’s projection and the potential for lower corn price was music to the ears of dairy and livestock producers. Hopes were renewed for greater profitability this year. The August milk/feed ratio did improve, but not yet enough to get too excited about.

Projections for milk and dairy product prices were increased on the latest USDSA World Agricultural Supply and Demand report. This was also good news, but one that may not come to fruition. Milk prices generally follow corn price and lower corn price may translate into lower milk prices.

Demand for dairy products is increasing, but higher demand is being met with fresh product as well as inventory. Recent aggressive buying in the spot market seems to have been the result of increasing prices bringing buyers of the sideline creating greater competition for available product. Once buyers are satisfied with their supplies the market may again drift lower. Class III milk futures are anticipating this and have lower prices already factored in. Futures during the first half of 2014 range from $16.35 to $16.85 while contracts during the second half are just above $17.00. Current Class III futures show an average price of $16.84 next year while USDA projects and average price of $17.55.

Recent replacement heifer demand indicates the desire to increase milk production. Reasonable heifer prices and declining corn prices is increasing the desire to fill stalls left vacant from heavy culling earlier in the year. USDA supports this intention with the projection of milk production next year to reach 204.5 billion pounds.

What this means to price is anyone’s guess. Increased milk production will need increased demand or lower prices will ensue. U.S. dairy prices are in line with world prices opening the door for greater export business. Hopefully, we can gain greater market share with high quality dairy products.


Upcoming reports:

- Federal Order Class I price on September 16
- Global Dairy Trade auction on September 18
- Livestock, Dairy, and Poultry report on September 18
- August Milk Production report on September 19
- August Livestock Slaughter on September 19
- August Cold Storage report on September 23
 

 

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.

The thoughts expressed and the basic data from which they are drawn are believed to be reliable but cannot be guaranteed. Any opinions expressed herein are subject to change without notice.

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.

Log In or Sign Up to comment

COMMENTS

Receive the latest news, information and commentary customized for you. Sign up to receive Beef Today's Cattle Drive today!. Interested in the latest prices for cattle in your area? See highlights of the latest for-sale cattle in the Cattle-Exchange eNewsletter.

Hot Links & Cool Tools

    •  
    •  
    •  
    •  
    •  
    •  
    •  

facebook twitter youtube View More>>
 
 
 
 
The Home Page of Agriculture
© 2014 Farm Journal, Inc. All Rights Reserved|Web site design and development by AmericanEagle.com|Site Map|Privacy Policy|Terms & Conditions