Is there light at the end of the tunnel?
Feb 19, 2009
By Robin Schmahl
Cheese prices have been on the rebound since mid-January making things look a little more positive. Cheese buyers have been more aggressive following discussions of a significant dairy herd buyout this year that could eliminate upwards of 300,000 cows and the simple fact that cheese prices were not likely to go much lower.
This buying activity on the Chicago Mercantile Exchanged has been confined to just a few firms who decided to build some inventory. This has been challenging as credit is tight and firms are unwilling to purchase too much ahead due to the overall slow demand. The rising cheese price is a welcomed sight to farmers. This will assure that cheese will not be sold to the CCC under the price support program.
The rising cheese prices also indicate that February may be the lowest month for milk prices. The current Class III futures contracts are showing higher prices as the year progresses providing some hope for milk prices as the year progresses.
The butter price has not seen buyer aggressiveness like the cheese market. The price has only ranged 4 cents since the beginning of the year from $1.09-$1.13/lb. Even though price has been above the support price of $1.05, this did not keep product from moving to the CCC under the support price program. So far this year there has been 4,120,822 lb. of butter purchased by the CCC. All of this butter has come from the West.
Nonfat dry milk is another story. Some continues to be purchased by the CCC on a daily basis. There has been 169,998,399 lb. since the Oct.1, 2008. This will limit upside price potential once the supply tightens and price begins to increase. This will be offered back on the market unless it is absorbed through another marketing channel.
The USDA is not quite so optimistic. The latest World Supply and Demand report showed the USDA lowering their estimate for 2009 dairy prices. Cheese price was lowered to a range of $1.18-$1.25/lb., a decrease of 8 cents. We are currently near the top end of this price range.
The Class III price for 2009 is estimated to range from $9.70-$10.40, a decrease of $0.95/cwt. from the January estimate. The Class IV price was lowered an average of $0.70 to the range of $9.35-$10.15 and the all-milk price was reduced $0.90 per cwt to the range of $10.95-$11.65. The estimated total milk production for the year was lowered 1.4 billion pounds. to 189.1 billion lb.. This would be a reduction of 600 million lb. of milk from 2008 and would be the first year-over-year decline since 2001.
Cooperatives Working Together indicates that members have approved the program for another two years at the present check-off rate of 10 cents/ cwt. Two changes were made to the program. One is that farmers who liquidate their herds under the program will not be able to get back into milk production for one year.
The other change is that those who have taken part in one of the earlier reduction programs can take part in another one. There were likely not many who have sold their herds earlier and are now back milking cows. However, for those who have, they can take advantage of the opportunity to do it again. CWT also indicated that they never have solicited any funding from the government, and any herd reduction will be done by the cash generated through the program or loans.
Upcoming reports to watch for are the January Milk Production report on February 19; the Livestock Slaughter report on February 20; the March Advanced Class I price on February 20; The January Cold Storage report on February 20; the February federal order class prices on February 27; and the February Agricultural prices on February 27.
--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.
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