Market Watch Diary More fun to come

June 15, 2008 07:00 PM
Alan Levitt

The first half of the year served up some interesting developments: strong cheese, butter and powder markets driven by very active exports; softer whey markets; weaker fluid milk sales; and continued expansion on the farm despite record-high feed costs. What does the second half have in store for us?

• Slower milk production growth. High feed costs, BST cutbacks and supply-management plans in California are slowly but surely taking their toll on productivity. By July, production growth will slow to less than 1%, and will remain at that pace throughout the second half of the year.

• Moderately lower exports. Higher prices for cheese and butter, coupled with a shortage of refrigerated shipping containers, will put a damper on U.S. exports. Meanwhile, lower milk production growth will into milk powder production, so exports of NDM/SMP should slow as well.

• Relatively strong prices. The historical pattern of producing as much cheese as possible in the first half of the year to hold and sell in the second half is no more. Now, cheesemakers are more comfortable producing on an as-needed basis and keeping inventories lean. That has significant implications on the markets.

Without that buffer of stocks to draw on, expect volatile pricing throughout the year. There is likely to be a time or two in the second half when current cheese gets very tight and buyers have to bid the market up to get what they need.

Unfortunately, they always push it up to the point that it squelches demand. So the price falls abruptly, and the cycle repeats itself.

This makes things tricky to manage. For instance, to get a Class III price of $19.65, the cheese price needs to average about $2.09, a level reached six times in the last year. However, in more than half of these instances, the price was able to hold at $2.09 or above for less than a week before orders dried up.

• Beware the wild cards. As always, weather can derail things. Tulare, Calif., in the center of the nation's largest dairy county, got no rain for three months, and suffered near-record temperatures (over 100°) in mid-May. This could mean a short tail on the spring flush out West, and also could impact feed quality as the year goes on.

But the biggest wild card is the CWT program. The dairy industry has been in continuous expansion mode for four years, but if CWT kills cows this year, near-term prices could move even higher than originally believed possible.

Alan Levitt is president of Levcom Inc. in Crystal Lake, Ill. You can contact him at (815) 459-1742 or


Bonus content

  • Click here to see USDA''s National Agricultural Statistics Service''s calendar of reports for June. You can also check for the latest major reports from USDA.

  • For the latest on the Cooperatives Working Together program follow this link



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