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  August 27, 2010

Ever-changing market conditions, mixed messages

Globalization has forever changed traditional measures of market conditions. For example, analysts predict a large harvest of corn and soybeans. Yet grain prices are rising and quite volatile on news that other nations—like China and Russia—may be hefty buyers of American grain due to drought.

While U.S. dairy farmers are still struggling to regain their footing, and milk prices have inched their way barely back into the black, uncertainty about grain prices poses a new concern for dairy margins here in the U.S.

And, the milk prices really could be better. Even though milk production continues to top year ago—up 3% in July according to USDA’s report last week—commercial use of cheese was up nearly 3% in the second quarter on the combination of stronger domestic use along with a big gain in exports. Total U.S. dairy exports, in fact, broke records for the first half of 2010. At the same time, retail prices here at home are rising (not that they ever fell much in the first place during 2009).

Cream supplies are very tight from coast to coast. Butter surged to $2.18 per pound by Friday, August 27 on the CME, which also pegged cheddar blocks at just over $1.6950 per pound, barrels at $1.6650.

The reason given for the comparatively slow rise in milk prices at the farm gate—along with uncertainty about milk prices for the rest of the year—is: Consumer confidence is low. Restaurant traffic remains low. Sales of packaged fluid milk are down 1.4% (which is really still above 2008 levels since 2009 was nearly 2% higher than 2008). Then comes the familiar chorus: “Who’s going to eat all that cheese in inventory?”

The World Agriculture Supply and Demand Estimates (WASDE) August report foresees continued growth in U.S. dairy production through 2011, and with it, the milk price forecasts were lowered.

 
     
 
 
 

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