Lower Dairy Prices Reaching the Farm, More to Come

December 22, 2008 11:07 AM
Robin Schmahl

Cheese prices have fallen to levels not seen in nearly two years. It is amazing to realize the transformation the market has undergone during those two years. 

Record-high dry whey and nonfat dry milk prices added a tremendous amount of money to the milk checks as they supported milk prices to record heights.  However, all good things come to an end. 

Dry whey and nonfat dry milk prices reached elevated levels that shut off demand and caused alternative products to be found found. Demand for these products continues to suffer even after huge price cuts, and has resulted in growing inventories.  Since October 1, the CCC has purchased over 101.0 million pounds of NFDM under the price support program, this level far exceeds the initial estimate of 60.0 million pounds by years end. 

Cheese and butter prices are falling. The decline is not primarily due to higher prices but caused by the struggling economy as consumers slow their purchases of products, including of dairy products. Restaurant traffic has lessoned, store brand products are enjoying better sales than name brand products as consumers look for the lowest prices, and exports have fallen, primarily in butter. These activities are what have brought us to the present state of the market.

The 2009 Class III milk price averages $13.33/cwt., a drop of $7.26 from the high made in mid-June. All commodities and equities began to decline at that time, and dairy was not immune from that pressure. 

Farmers will not feel the brunt of this until January when considerably lighter milk checks are received. The December price is mostly calculated around $14.70/cwt. If this price is realized, the average price Class III price for 2008 will be $17.39/cwt., which would be $0.65 lower than last year but the second highest annual average on record. 

One can only hope that the current recession will come to an end quickly, dairy product demand will increase, and the combination of the CWT program plus low milk prices will tighten supply quickly. 

Upcoming reports to watch for are the November Livestock Slaughter report on December 26, The December Ag Prices report on December 30, and the November Dairy Product Production on January 5, 2009.

--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 Web site 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 may not be suitable for everyone. Those acting on this information are responsible for their own actions.

This column is part of the Dairy Today eUpdate newsletter, which is delivered to subscribers biweekly and includes dairy industry analysis, dairy nutrition information as well as the latest dairy headline news. Click here to subscribe.



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