Nonfat Dry Milk Shows Good Potential

Published on: 19:06PM Dec 07, 2015

There is always quite a bit of analysis done on the cheese and butter market as to where prices are headed. It certainly has been a wild year for butter with the low being $1.54 near the beginning of the year and moving to a record high of $3.1350 in late September. One would have not thought a new record price was possible given the substantial slowing of exports. However, domestic demand remained strong with manufacturers keeping output close in line with that demand. Butter price has held surprisingly well into December with buyers and sellers needing to do business where market fundamentals suggest the value is. I believe butter price will not be able to maintain this price level through the end of the year with a decline similar to last year likely to unfold. However, we must enjoy this price and be thankful it has held better than anticipated. Cheese prices have been slowly grinding lower and the subject of concern over where prices will head once holiday demand slows.

 

Let’s take a look at nonfat dry milk and its impact on the market. First of all, price movement in nonfat dry milk has no direct impact on the Federal Order Class III price. It has impact on Class II and IV. Over the course of this year, Grade A nonfat dry milk spot price has ranged from a high of $1.20 per pound in mid-February to a low of 69 cents per pound in early August. This is quite a range for nonfat dry milk. Fortunately, when the low price was reached in August, butter price was soaring offsetting the loss. It takes 11 pounds of skim milk to make a pound of nonfat dry milk or slightly over 9 pounds of nonfat per hundredweight. It is a category of milk products that utilizes quite a bit of milk supply.

 

Nonfat dry milk production has been strong much of the year resulting in ample supply for demand. For a while, buyers were content to purchase hand-to-mouth rather than establishing contracts for future needs. Low price has improved some of the contracting desire, but ample supply does not make this a priority. Production is also increasing in much of the country as milk production increases seasonally.

 

Inventory of nonfat dry milk is ample with some terming the world as being awash in powder. These inventories will need to be reduced before there is any hope for an extended price recovery. There is anticipation prices will remain sideways for the foreseeable future with anticipation of lower prices before any price support will develop. U.S. nonfat dry milk production is expected to increase over the month of December as more milk is moved to dryers, which will add to inventory.

 

On the other hand, exports have been doing well as price is competitive with world price. October exports of nonfat dry milk/skim milk powder have reached the highest level in five months totaling 49,812 metric tons. This was 28.5% above a year ago with year-to-date exports up 0.4% over last year. This is the only main category of exports that is running ahead of last year. The big reason is that price has been very competitive on the world market.

 

Even though the U.S. has been competitive and demand strong, supply is burdensome keeping price depressed. There is little expectation for a strong price anytime soon. USDA anticipates an average nonfat dry milk price for 2016 at 98.50 cents per pound.

 

Upcoming reports:

 

-World Agricultural Supply and Demand report on December 9

-November Milk Production report on December 18

-November Cold Storage report on December 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.

The thoughts expressed and the basic data from which they are drawn are believed to be reliable but cannot be guaranteed.  Any opinions expressed herein are subject to change without notice.  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

There is always quite a bit of analysis done on the cheese and butter market as to where prices are headed. It certainly has been a wild year for butter with the low being $1.54 near the beginning of the year and moving to a record high of $3.1350 in late September. One would have not thought a new record price was possible given the substantial slowing of exports. However, domestic demand remained strong with manufacturers keeping output close in line with that demand. Butter price has held surprisingly well into December with buyers and sellers needing to do business where market fundamentals suggest the value is. I believe butter price will not be able to maintain this price level through the end of the year with a decline similar to last year likely to unfold. However, we must enjoy this price and be thankful it has held better than anticipated. Cheese prices have been slowly grinding lower and the subject of concern over where prices will head once holiday demand slows.

 

Let’s take a look at nonfat dry milk and its impact on the market. First of all, price movement in nonfat dry milk has no direct impact on the Federal Order Class III price. It has impact on Class II and IV. Over the course of this year, Grade A nonfat dry milk spot price has ranged from a high of $1.20 per pound in mid-February to a low of 69 cents per pound in early August. This is quite a range for nonfat dry milk. Fortunately, when the low price was reached in August, butter price was soaring offsetting the loss. It takes 11 pounds of skim milk to make a pound of nonfat dry milk or slightly over 9 pounds of nonfat per hundredweight. It is a category of milk products that utilizes quite a bit of milk supply.

 

Nonfat dry milk production has been strong much of the year resulting in ample supply for demand. For a while, buyers were content to purchase hand-to-mouth rather than establishing contracts for future needs. Low price has improved some of the contracting desire, but ample supply does not make this a priority. Production is also increasing in much of the country as milk production increases seasonally.

 

Inventory of nonfat dry milk is ample with some terming the world as being awash in powder. These inventories will need to be reduced before there is any hope for an extended price recovery. There is anticipation prices will remain sideways for the foreseeable future with anticipation of lower prices before any price support will develop. U.S. nonfat dry milk production is expected to increase over the month of December as more milk is moved to dryers, which will add to inventory.

 

On the other hand, exports have been doing well as price is competitive with world price. October exports of nonfat dry milk/skim milk powder have reached the highest level in five months totaling 49,812 metric tons. This was 28.5% above a year ago with year-to-date exports up 0.4% over last year. This is the only main category of exports that is running ahead of last year. The big reason is that price has been very competitive on the world market.

 

Even though the U.S. has been competitive and demand strong, supply is burdensome keeping price depressed. There is little expectation for a strong price anytime soon. USDA anticipates an average nonfat dry milk price for 2016 at 98.50 cents per pound.

 

Upcoming reports:

 

-World Agricultural Supply and Demand report on December 9

-November Milk Production report on December 18

-November Cold Storage report on December 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.

The thoughts expressed and the basic data from which they are drawn are believed to be reliable but cannot be guaranteed.  Any opinions expressed herein are subject to change without notice.  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