AgDairy Market Update
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.
Current U.S. Dairy Prices in Line with World Prices
Feb 18, 2011
If U.S. prices continue to increase, we may price ourselves out of the export market. As of Friday, the block cheese price had increased 21 consecutive days, setting a new record.
Cheese and nonfat dry milk markets are strong with no sign of topping. There have been a few trading periods that looked as if prices were near the top, but those were short-lived. As of Friday, block cheese price increased 21 consecutive days, setting a new record. Over those 21 days, price increased 45.50 cents to reach $1.9550 and a record high for this time of year.
Nonfat dry milk was not far behind. Prices did not increase as much nor as consecutively as blocks, but price did increase 30.25 cents over the same period of time. But even though the increasing price relationship between nonfat dry milk and cheese is not the same, nonfat has been and is the leader of the two markets. Buyers are coming to the daily cash market to obtain any extra spot loads that may be available, since it’s difficult to find uncommitted product through regular channels.
Butter price has remained high after making an initial jump in early January with cheese, dry whey and nonfat dry milk steadily moving higher over the past two months. Butter price has been weakening the past week, moving down near the $2.00 level where it will likely hold. Current prices now are right in line with world prices. Oceania reports butter price ranging from $2.03-$2.31, cheese at $1.95-$2.04, and nonfat dry milk/skim milk powder at $1.63-$1.91.
Although U.S. prices are right in line with world prices, it is doubtful there will be much more upside price potential unless world prices increase. If U.S. prices continue to increase, we may price ourselves out of the export market. Granted, international demand is strong, but price will remain in line. Right now, cheese exports have slowed, but continue to be helped by the Cooperatives Working Together Export Enhancement program.
USDA recently released its “Farms, Land in Farms and Livestock Operations” annual summary for 2010, showing farm size continues to increase. According to the report, herds with 2,000 or more cows produced 32.5% of the nation’s milk, followed by farms with 100-499 cows producing 24.0% of the nation’s milk.
Five years ago, dairy farms with 100-499 cows produced the highest percentage of total milk in the country, with farms with 2,000 cows producing the second highest percentage. This trend will continue. Total operating dairy farms declined by 2,500 over the past year. However, milk production continued to increase as cow number increased and milk per cow improved.
We are in some interesting times with higher potential milk prices generating a greater desire to add cows and improve milk production. The argument that high feed prices will impact milk production by reducing milk output and decrease cow numbers is being put to rest temporarily. The potential for milk prices to remain at $18.00 per cwt. or possibly higher in the next few months -- or possibly much of the year -- will not cause milk production to slow.
If domestic and world demand remains strong, we do not want to curb milk production but to produce as much as we can. That is what farmers intend to do with grain production this year as world demand increases. We need to maintain as much market share as we can, since losing that would be detrimental in the long run.
Current marketing recommendations are to purchase put options in months over $18.00 to protect against a price decrease. This would be an insurance policy while leaving the upside open. Do not be complacent that these markets are immune to a setback. The thought that prices will not retrace were alive and well in 2008 as well, and we all know the results of that thinking.
- January Cold Storage report on Feb. 22
- Livestock Slaughter report on Feb. 25
- Agricultural Prices report on Feb. 28
- Fonterra auction of March 1
- California Class 4a/4b prices on March 1
- February Class II,III, and IV on March 4
Robin Schmahl is a commodity broker and owner of AgDairy LLC, a full-service commodity brokerage firm located in Elkhart Lake, Wis. He can be reached at 877-256-3253 or through 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.