Milk prices continue to look better with each passing week. This is the time of year when buyers become more aggressive. They purchase for previously made contracts and increase inventory for anticipated upcoming demand. Their level of aggressiveness is based on demand and the level of supply.
Cheese inventory is below year-earlier levels. This is cause for concern but added to that has been continued year-over-year milk production declines. What is interesting is the demand for barrel cheese. The barrel prices reached their highest price since November 5, 2020.
One year ago, the barrel price was $1.82 compared to $2.4850 on September 13th. The buyers were aggressive with the price gaining 21 cents for the week. The barrel price has had three substantial gains this year that took place over short periods. One was from April to mid-May during which the price increased 67.25 cents. Another was in August during which the price increased by 38.25 cents.
The current increase of 38.50 cents happened over the past 2 1/2 weeks. It is uncertain whether the price is nearing a threshold or if it will have further room to run higher. The recent buying interest indicates there is further upside potential. Block cheese has not followed suit but is in no way bearish with the price reaching the highest level since May 24, 2022.
Milk production continues to show a decrease in most areas. The extended weather forecasts show above-normal temperatures that will extend the usual period of lower milk output. The positive aspect is that crops are maturing rather quickly in many areas.
The USDA released the World Agricultural Supply and Demand Report which showed their estimate for record yields per acre for both corn and soybeans. The corn yield per acre is projected at 183.6 bushels with the soybean yield at 53.2 bushels. This would increase the supply of grain and keep feed prices reasonable.
Nonfat dry milk has seen substantial buying interest due to tight supplies. Since August 9th, the price has increased 19 cents moving to the highest level since November 2022. The price has declined only 5 days over the past 25 days. An increase such as this has not been seen since 2021. Dryers are trying to produce as much nonfat dry milk as possible with current production moving to the market nearly as quickly as produced.
One aspect that is being seen is that farmers are becoming complacent over risk management. The strength of underlying cash prices has improved milk checks and the futures prices with the general belief that reduced milk production will continue due to lower cow numbers and tight replacement numbers. It is difficult to look ahead and see Class III milk futures significantly lower than the nearby prices.
The market has a seasonality built into it as it usually does in anticipation of lower demand after the holiday season and early in the following year. I am not suggesting stepping up and hedging at whatever the current prices are showing, but farmers need to be mindful of the levels at which floors could be established to protect profitability while leaving the upside open to capture higher prices if they develop.
* I will be at the World Dairy Expo from October 1st through 4th. Please visit the AgMarket.Net booth 664 in the Trade Center. I will also be part of the panel for the live taping of the US. Farm Report in the Tanbark on Wednesday, October 2nd from 12:00 – 1:00 pm. On Thursday, October 3rd, I will be presenting at the 3:30 Knowledge Nook session on the topic, “Making the Most of Your Farm Income Potential”. I hope to see you there!
Robin Schmahl is a commodity broker with AgDairy, the dairy division of John Stewart & Associates Inc. (JSA). JSA is a full-service commodity brokerage firm based out of St. Joseph, MO. Robin’s office is located in Elkhart Lake, Wisconsin. Robin may be reached at 877-256-3253 or through the website www.agdairy.com.
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 trading commodity futures and options on futures. It may not be suitable for everyone. This material has been prepared by an employee or agent of JSA 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.
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