Apr 18, 2014
Home| Tools| Blogs| Discussions| Sign UpLogin


November 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.

Milk Production Keeps Up with Demand

Nov 25, 2013

The U.S. has quality dairy products available for purchase, and the world is coming to our door.

Dairy exports have increased significantly from last year, with the value of dairy exports to China alone up 62% for the first nine months of this year compared to last year. My previous article discussed the U.S. export potential of dairy products to China, but the Asian nation came back in the news last week as they consider easing the one-child policy that has been in place for years. This caused a ripple of excitement throughout the dairy industry as it could increase exports substantially.

The U.S. is not the only country excited about this. New Zealand and Australia are hoping for increased business as well. Australia has been the larger supplier of dairy products to China, but there is no double the U.S. will gain some of this market share. After all, the value and amount of dairy products we ship to China has already increased significantly, and that will continue.

Exports in general have increased substantially for most dairy products so far this year. Cheese and curd exports in September were up 40.4% over last year, reaching 25,782.5 metric tons, and year-to-date exports are up 14.1% over the same period last year. Whey exports in September increased 6.6% to total 42,498.3mt. Butter exports have improved dramatically over last year, with the amount exported in September up 493.2%, reaching 11,335.7mt with year-to-date exports up 63.8%. Nonfat dry milk exports increased 38.6% from last year to 46,618mt, an increase of 18.5% so far this year. We have quality dairy products available for purchase, and the world is coming to our door due to U.S. prices being comparable to world prices.

Milk production so far, it appears, is keeping pace with both domestic and international demand. The October "Cold Storage" report showed American cheese stocks are still 3% above last year. Other cheese stocks rose 4% with total cheese stocks up 3%, while Swiss cheese stocks declined 8% from last year. Butter stocks declined substantially from September with inventory at 173.8 million pounds, down 59.2 million pounds from last month, but up 20% from last year.

Improved exports and domestic demand have yet to reduce supply below last year and, with two months of the year remaining, it may be difficult for this to take place. The upside is that we are improving milk production to keep up with demand and to better positions ourselves as supplier for the world market. International buyers want a reliable source for dairy products, and we are rising to the challenge.

For those who will need to purchase corn, now is the time to step up and purchase call options for feed needs. Purchase March call options one strike above the futures price for about 13 cents. Do the same for May, but increase the premium to be paid to about 18 cents. In July, purchase $4.70 call options for 20 cents. Futures may exhibit a traditional post harvest rally. Lower price has been improving export sales and with it could come stronger prices. However, there is plenty of supply available, but protection of feed prices needs to be done.

Upcoming reports:

- Agricultural Price report on November 27
- GDT auction on December 3
- October Dairy Products report on December 4
- World Agricultural Supply and Demand report on December 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.
 

Dairy Exports Hold Much Potential

Nov 08, 2013

China’s voracious feed and dairy demand attracts not just U.S. attention but the world’s. Can the U.S. to rise to the challenge of supplying quality dairy products to a hungry world?

I have been hearing and reading much about growing demand for dairy products in China as well as their desire to improve milk production in their country. It is unlikely they will be able to become self-sufficient in milk production, but there is much they can do to improve production and efficiency. The Chinese government and other investors are pumping large amounts of capital into their dairy industry.

The problem China is dealing with is the current high cost of production. The cost of milk production in China is estimated to be around 50% above the level in U.S. dairy as farming in China depends on purchased feed. Overall for the country, they import 80% of their soybean requirements, 5 % of corn, and all of their alfalfa hay. Hay exports to China have increased dramatically over the past few years. This, combined with lower hay production last year due to the drought, has increased domestic hay prices significantly. As the interest in alfalfa hay increases from the export market, domestic supply may tighten and prices will rise.

The appetite of Chinese consumers for dairy products is increasing. The average salary is improving as well the appreciation of their currency. Chinese consumers can afford to purchase higher-priced dairy products as their lifestyle changes.

Even though more money and effort is being moved to their dairy industry, the country never will produce enough for demand. China will continue to become a greater destination for dairy products from other countries of the world. Exports to China have grown substantially. It’s becoming the second largest country of destination of U.S. dairy products and where a lot of potential lies for the U.S. dairy industry.

However, we are not alone as other countries have their sites set on supplying the Chinese market as well. World demand in general is increasing, and countries see the potential and are rising to the challenge. Better weather this year is showing the resiliency of milk production. Milk production in Ireland in September was up 12%. The United Kingdom was up 6.5%, the Netherlands up 8.6%, Germany is up 3.5%, and France up 1.6%. New Zealand is expecting milk production to be up around 5% this year compared to last year.

Domestic demand needs to continually be cultivated and improved, but the real future is in exports. We need to rise to the challenge and supply quality dairy products to a hungry world. Projected U.S. exports for 2013 are on track to post an increase of another 16% over last year with the value of those exports up more than 25%.

One of the options debated in the Farm Bill is supply management. It seems counter productive to push for a program that may require limiting milk production for the purpose of supporting domestic milk prices. The effects of this will be circular. Lower milk prices would require a decrease in production, resulting in higher milk prices. Higher milk prices could limit domestic and international demand, resulting in lower prices. Production would then need to be reduced in order to support milk prices, potentially reducing both domestic and international demand. The greater result could be loss of export market share as well as domestic business as more imports could find their way to our shores. This could be a cycle that could be detrimental to the U.S. dairy industry.

I recommend implementing fence strategies of purchasing $16.75 and $16.50 put options and selling $18.00 call options. Over the past five years, milk prices declined from November to December four of those years. The futures market has a decline already anticipated. The purpose is to protect farm income and this strategy allows that while also allowing for some upside potential.

Upcoming reports:

- October Milk Production report on November 19
- December Federal Order Class I price on November 20
- October Cold Storage report on November 22.
- October Livestock Slaughter on November 22

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.

Log In or Sign Up to comment

COMMENTS

Receive the latest news, information and commentary customized for you. Sign up to receive Top Producer's eNewsletter 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