Dairy Faces Oncoming Freight Train

July 27, 2015 12:00 PM
Dairy Faces Oncoming Freight Train

Dairy producers should get their 2016 marketing plan in place amid a massive global supply and an eroding futures market, says Mike North, Commodity Risk Management Group.

“Take action, get some hedging in place, address 2016,” North tells host Clinton Griffiths on the “AgDay” Agribusiness Update. “Be flexible in case something changes and we can work back higher, but recognize that there is real risk in this market.”

Challenges for U.S. dairy producers include an absence of sellers and a plethora of supply, North says. China is not interested in building stocks, and Europeans are searching for dairy buyers because the Russian market is not open for exports. Meanwhile, the U.S. is ramping up dairy production 1% to 2% year over year.

“If you look at 2016 markets on Class III milk, we peaked out at about $16.90 toward the first part of June, end of May. That market is now at $15.70,” North explains. “We’ve dropped fully $1.20 in futures on that first half of the year because as people are starting to recognize some of these factors that are waiting out there in the wings, there’s some nervousness coming to the market that is being met with some selling, and no buyers are willing to step in front of this freight train right now.”

That likely means lower dairy product prices across the board.

“[There are] $1.20 cheese markets out there globally, and we’re at $1.60,” North says. “There are $1.09 butter markets out there, and we’re at $1.75. There’s plenty of room for us to come down. That spells lower milk prices and some troubled times. “

Click the play button below to watch the complete interview with North.

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