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Feb Mar Apr May July AugJune Sept Oct Dec Jan2012
Nov Feb Mar Apr May June July Aug SeptOct2009
Nov Dec Feb Mar Apr May June July Aug Sept Oct Nov DecJan2010
Jan2011
CA Class 1price
Federal Class I price$9
$11$13$15$17$19$21$23$25
MARKET WATCHMARKET WATCH TIGHTENING IN FAT SUPPLIESDAIRY PRICES
Aug. 2012: $17.59 High: $21.78 Low: $12.35Aug. 2012: $19.61 High: $23.84 Low: $14.02
Fluid milk prices (in dollars)
Mike NorthFirst Capitol [email protected]
� e U.S. drought has captivated market participants for months, causing milk futures prices to rise dramatically to levels above $20 per cwt for the fourth quarter of 2012 and averaging $19.25 per cwt for the fi rst half of 2013. � is movement has been reinforced by the fact that cow numbers have continued to retract since May, losing 44,000 cows since the April peak. � is trend began amid a lack of profi tability at the farm. In drought years it is common to see this trend continue as feed becomes scarce or profi tability wanes. With spot feed prices at record highs (corn at $288 per ton and soymeal at $534 per ton), many are projecting a continuation. However, as milk futures prices have climbed, many producers are penciling profi table margin opportunities (average 2013 Class III price is $18.76) looking forward ... enough of an opportunity to bring cows back to the farm. With replacement heifers readily available, this type of response can happen quickly. � e market waits for evidence of either further liquidation or a turn towards rebuilding. � e USDA will release the August milk production report on September 19.
While drought, and its impact on feed and milk prices, has captured the spotlight, a story of less media interest is operating in the background – one that is more in line with 2013 Class III price off erings (currently averaging $18.76 per cwt ). � is story revolves around product prices and their contribution to Federal Order milk pricing. At current levels, product prices suggest Class III milk price values closer to the middle-to-upper-$18-per-cwt zone. While guesswork drives futures prices, spot product pricing absolutely determines the present value of milk. With 2012 futures prices trading at levels much higher than the $18 to $19 levels suggested by the Federal Order formula, either milk prices must move lower or product prices must rise beyond current values. Of late, the former, not the latter of these scenarios has identifi ed itself as the winner. As we sort this out month by month, the market will remain in a state of fl ux, with volatility being the most identifi able characteristic of the marketplace. Ultimately the consumer (here and abroad) will dictate which price picture becomes reality. In the meantime, be sure to manage your margin opportunities as they arise – what is off ered by the futures market today and what you later pay or are paid are often two diff erent things. PD
Come see what’s new at Booth EH3205-3306World Dairy ExpoOctober 2-6, 2012
14 Progressive Dairyman Issue 14 • September 21, 2012
2010
2011
10/1/11
11/5/11
12/3/11
3/3/12
5/5/12
9/4/12
7/7/12
8/4/12
9/1/12
4/7/12
1/7/12
2/4/12
9/11/10
6/2/12
$1.25
$1.50
$1.75
$2.00
$2.25
8/29/12
8/30/12
8/14/12
8/15/12
8/16/12
8/17/12
8/20/12
8/21/12
8/22/12
8/23/12
8/24/12
8/27/12
8/28/12
8/31/12
9/4/12
$1.78
$1.82
$1.86
$1.90
$1.94
$1.98
Sept. 4, 2012: $1.85 High: $2.15 Low: $1.32Cheese(weekly average in dollars)
September 4 Global Dairy Trade pricing showed cheddar cheese rising 5.3 percent to an average price of $1.63 per lb. Presently, CME cash trading has block and barrel cheese trading at an average price of $1.80 (blocks – $1.82 per lb, barrels – $1.775 per lb), a dime off of its mid-August peak.
10/1/11
11/5/11
12/3/11
1/7/12
3/3/12
4/7/12
5/5/12
7/7/12
8/4/12
9/1/129/4/12
2/4/12
9/10/11
6/2/12
2010
2011
$1.25
$1.50
$1.75
$2.00
$2.25
$2.50Sept. 4, 2012: $1.83 High: $2.23 Low: $1.31Butter (weekly average in dollars)
8/29/12
8/30/12
9/4/12
8/15/12
8/16/12
8/17/12
8/20/12
8/21/12
8/22/12
8/23/12
8/24/12
8/27/12
8/28/12
8/31/12
8/14/12
$1.75
$1.80
$1.85
$1.90A recent tightening in fat supplies has been witnessed as school milk programs consume fl uid that throughout the summer has been balancing the demand for fat in both butter and ice cream production. Firming prices along seasonal lines have been witnessed both domestically and globally as buyers prepare for the coming holiday season. U.S. butter prices start September with a price of $1.86 per lb while Global Dairy Trade pricing of anhydrous milk fat rose to a U.S. dollar equivalent of $1.60 per lb.
MarFebOct NovAug2011
Jan2012
Apr MaySept June JulyDec
20102011
$1.20$1.30$1.40$1.50$1.60$1.70$1.80$1.90 July 2012: $1.26 High: $1.74 Low: $1.21Non-fat dry milk
Feb Mar Apr May June July Aug Sept Oct Nov Dec Feb Mar Apr May June July AugSept2010
Oct Nov Dec
Futures
Jan2011
Jan2012
2013 20142012
$11
$13
$15
$17
$19
$21
$23 Class III (in dollars)Aug. 2012: $17.73 High: $21.67 Low: $13.48
CHEDDAR CHEESE RISES 5.3 PERCENT
...as milk futures prices have climbed, many producers are penciling profi table margin opportunities (average 2013 Class III price is $18.76) looking forward ... enough of an opportunity to bring cows back to the farm. ”
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Issue 14 • September 21, 2012 Progressive Dairyman 15
