Jul 31, 2014
Home| Tools| Events| Blogs| Discussions| Sign UpLogin


December 2011 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.

End of 2011’s Dairy Market Holds Similarities to 2010

Dec 26, 2011

The end of the year is shaping up to be very similar to the end of last year, only at a different price level. Milk prices are declining much like they did last year into the first of the year. High feed prices will need to be managed aggressively in 2012.


The end of the year is shaping up to be very similar to the end of last year, only at a different price level. Milk prices are declining much like they did last year into the first of the year.
November’s Class III price was $19.07, the highest November price since 2007. December is virtually done pricing except for the USDA announcing it. The trade has it pegged at $18.70, which would be a decrease of 37 cents from November.
 
January futures are trading at $17.22 and are following cash closely. One week of the January contract is already priced, and price fluctuations should become less pronounced as the next three weeks unfold. Eventually, the contract will flat-line until price is officially announced. If the current price is realized, this would be a decline of $1.48 from December. Subsequent contracts in 2012 are posting an average of $17.10.
 
A year ago, the November Class III price was $15.44 and then dropped 46 cents to $14.98 in December. In January, the price dropped to $13.48 down 50 cents. Price then jumped up to $17.00 in February. So, the pattern is similar with futures contracts for 2012 and posting very little price premium just like they did last year. Traders are not anticipating a significant price increase next year.
 
Last year, February futures remained close to the January price until Jan. 7 when the futures market rallied over $3.00 following the 66-cent increase in cheese price.
 
It is unlikely the market could duplicate the same price increase this year as that would push Class III price over $20.00 and cheese price near $2.20. Strong milk production and slowed demand will keep a lid on price. World price would not support that size rally at this point. The latest Fonterra auction had cheddar cheese price at $1.63 per pound.
 
November cheese inventory a year ago was about 40.0 million pounds less than this year. Cheese and curd exports are about 3,000/MT higher than a year earlier, slightly lower than the growth of the previous year when exports increased 4,600/MT over 2009.
 
Lest you think the similarities would indicate no need to implement some form of price protection, bear in mind the typical price patterns and cycles of the market. The pattern between higher and lower prices is generally 2 1/2 to 3 years. Lower prices were experienced in 2003, 2006 and again in 2009. The cycle could be repeated in 2012.
 
The March corn price in 2011 was nearly identical to the current futures price. Price then rallied about $1.00 per bushel by March. This certainly could happen again if funds come back into the market and the battle for acres intensifies. Current projections indicate increased corn acres will be planted keeping a lid on price. However, weather is always the wild card.
 
Be prepared as a feed buyer. With corn stocks as low as they are, any weather problems could develop into a significant price rally over a short period of time. Those who already covered feed needs with call options or call option spreads should consider rolling them down to gain better protection.
 
Milk production continues to increase with November milk production up 1.8% over the previous year. Milk production for the first three quarters of the year was 1.6% higher than the same time period in 2010. Cow numbers are up 91,000 head over a year earlier. Texas continues to lead the charge in percent of milk production growth with an increase in November of 8.4%. Despite adverse weather this year, the state has increased milk production every month. In fact, the last time Texas posted negative production growth over the previous year was August 2010.
 
All in all, 2011 has been a good year for milk prices but not necessarily for profitability due to high feed prices. These will need to be managed as aggressively in 2012.
 
Upcoming reports:
- Agricultural Prices report on Dec. 30
- December Federal Order class price on Dec. 30
- Dairy Products report on Jan. 3
- Fonterra auction on Jan. 3
 
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.

 

A Strong Close to a Good Year

Dec 12, 2011

While dairy prices will finish the year strong, the New Year will turn some new leaves, starting with the European Union somatic cell requirement taking effect.

 
Nearly half of December is behind us. The common phrase heard with Christmas and the New Year just ahead is, “Where has the year gone?” Of course, there are always 24 hours in a day that neither speed up nor slow down, but time always has a way to slip past and, before we know it, we are in the next week, month or year.
 
Now that the calendar is nearly half way through December, the Federal Order prices are all but set for the month. Generally, half way through the month, futures prices for that month will begin to flat-line with very little price fluctuation. December Class III futures are now hovering around $18.55 and Class IV futures near $17.05. Prices will certainly finish the year strong.
 
Milk futures are not quite as rosy for 2012, but prices are still historically good. The interesting aspect is that the price difference between the high and low of next year is only 45 cents. If this were to be realized, it would closely resemble 1983. That year, the base Federal Order milk price only showed a price fluctuation of 45 cents. There were a few other years in the early 1980s that did not exhibit much price fluctuation, but overall volatility has increased significantly. This year alone has had a price range in Class III announced of $8.19, and Class IV posting a range of $4.63. It is very unusual to see neither a price premium nor much of a price discount for the next year’s futures contracts at the end of a year.
 
I do not think next year’s prices will be void of volatility. Who thought cheese prices would drop back to spring levels during the month of December? Yet, here we are. Holiday demand is satisfied with only fill-in buying required. Buyers are turning their attention to expected demand and orders for early 2012. However, even though there is buyer interest, there is plenty showing up at the spot market at current prices. Manufacturers want to reduce inventory by the end of the year.
 
The New Year will turn some new leaves, starting with the European Union somatic cell requirement taking effect. Beginning Jan. 1, any milk or products destined for the EU will need to meet the requirements of the “European Health Certification Program.” This means that raw milk will need to have a somatic cell count of 400,000 m/L or less.
 
Now don’t get this confused with the earlier discussion this year to lower the U.S. somatic cell count to 400,000, which was postponed. This is just for milk products or ingredients that will be shipped to the EU. Suppliers, processors and applicants who export dairy products will be responsible for maintaining records to trace their products back to verify meeting these requirements. Farm-level milk will need to comply with the requirements and will be tested accordingly for both Grade A and Grade B milk that is bound for the export market to the EU. All farms will establish rolling three-month means to determine the average mean for the following month. Example: January, February and March will be used to determine April. Then February, March and April will determine the mean or average for May and so on.
 
One has to wonder if this may slow the desire to export dairy products or ingredients to the EU. This is going to require more paper work to keep everything accounted for. A revival of the desire to establish a national requirement of a 400,000 cell count limit may surface soon. This could potentially make the paper trail somewhat easier.
 
More and more of these requirements will need to be met in order to compete in the world markets.
 
Upcoming reports:
-          November Milk Production report on Dec. 19
-          Fonterra auction of Dec. 20
-          November Cold Storage report on Dec. 22
-          Livestock Slaughter report on Dec. 23
-          January Federal Order Class I price on Dec. 23
-          Commercial disappearance on Dec. 27
 
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.
Log In or Sign Up to comment

COMMENTS

Receive the latest news, information and commentary customized for you. Sign up to receive Dairy Today's eUpdate today!

 
 
 
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