by Robin Schmahl
Milk futures have lost what was gained. In fact, all contracts in 2010 have made new contracts lows without a bottom is sight. Of course, these are futures contracts and not necessarily the prices we may see. However, futures prices have fallen due to declining cheese prices.
Cheese production for 2009 was a record high with 10.1 billion pounds produced, an increase of 1.7% from the previous year. There have been 18 years of steady growth in cheese production. Slower demand is definitely having an impact on prices.
Cheese prices are falling from increasing inventory, leaving cheese readily available to buyers. In fact, total cheese stocks for January were just shy of 1 billion pounds. Some buyers have been purchasing as prices decline and storing it for later in the year. The longer it remains a buyer's market, the less likely the chance of a significant price increase. This inventory needs to decrease before higher prices will unfold.
Many had been anticipating a tightening milk market due to a year of low prices. Higher culling rates as well as a few CWT herd reduction programs have not had the impact hoped for.
Farmers usually respond to higher prices, and some recent reports indicate this. Cow numbers on the January monthly milk production report showed an increase of 3,000 head, the first month-over-month increase since December 2008. Dairy cattle slaughter for January showed 49,000 less cows slaughtered versus one year ago.
I have stated before that there is a lot of finger pointing and blaming going around. One reason, and likely the main reason, we are experiencing these prolonged low prices is the economy. Very few of us have lived through an economic situation such as we have now.
Sadly, it does not seem to be getting better and certainly will take much longer than many analysts have anticipated. The latest Consumer Confidence Index fell much greater than expected. The index was expected to decline slightly, but it unexpectedly fell 11 points to an index of 46.0. There were three months of improvement, but that has been eliminated and then some. The Conference Board Consumer Research Center pointed out that the combination of earnings and job anxieties will likely curb spending.
On the bright side, exports have been increasing after a year of being depressed. World demand has been slowly increasing, resulting in more interest in our products from other countries. The limiting factor to this is the recent increase in the value of the U.S. dollar. This has already resulted in some slowing of butter export interest. However, the overall outlook is indicating better export demand for 2010.
Upcoming reports to watch:
- Dairy Products report - March 2
- Fonterra auction - March 2
- February class price - March 5
- World Supply and Demand report - March 10
- Fluid milk sales - March 12
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.
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