AgDairy

 
  12/15/21 1:38:14 PM


AgDairy Market Update                                 12/13/2021
 
More Money From the DMC Program
 
Milk futures have been increasing as there is increased optimism over milk prices. Reduced milk production could tighten supply if the pattern continues. The 2022 signup for the Dairy Margin Coverage program and revisions have been announced.
 
There has been significant strength in milk futures over the past 1 1/2 weeks with new contract highs being made across the board. It certainly is good to see most Class III futures in the mid to upper $19.00’s and Class IV futures well into the $20.00’s. This is a testament to continued strength of underlying cash primarily in the butter and power markets and optimism for cheese and dry whey markets.
 
Class IV futures have really come to life with nearly steady gains since late September. In fact, futures over the past 1 1/2 weeks have risen over $1.00 per cwt in reaction to the gains of butter and nonfat dry milk prices. Class III futures have risen in reaction to the strength of barrel cheese and dry whey prices, but the laggard has been block cheese. Over the past three weeks block cheese price has only risen 5 1/4 cents. The strength has come from the increase of barrels, dry whey and optimism. Barrels are regaining the loss suffered during October through mid-November while dry whey have reached a new high since it began trading on the CME daily spot market in March 2018. In fact, dry whey is at the highest price since August 2007.
 
The optimism stems from the recent pattern of heavy culling and lower milk production per cow. If this continues, milk supply could tighten at a time when both domestic and world demand is strong. Even though we have been hearing about the difficulties of shipping and congestion in the ports, dairy exports have been doing well. Cheese exports in October were 43.7% above October 2020 with butterfat export 107.1% above a year earlier with year-to-date cheese exports up 11.3% and butterfat exports up 132.5%. This is providing support to prices as buyers seem are willing to look further ahead to potential demand during the first quarter of next year and are already taking steps to increase ownership now rather than wait until later. This is certainly making for an interesting market. Prices seasonally decline as demand slows after the holidays, but current uncertainty of supply over the next months may keep prices supported longer than usual.
 
However, that does not mean that one should become complacent and not takes steps to utilize the tools available for price protection. USDA recently announced the signup period for the Dairy Margin Coverage program (DMC) for 2020. Sign-up is to begin December 13th and continue through February 18th. This is a very important program for the protection of income over feed prices. Over $1.0 billion will be distributed to farmers under the DMC program in 2021 alone. We should not expect a repeat of that in 2022 but being involved in the program does provide some aspect of income protection. 

Granted, the program is geared toward small to medium sized farms, but all farms can take advantage of the program up to the $9.50 level for up to 5 million pounds of milk annually. This year will be a bit different as producers will have the opportunity to increase production history by enrolling supplemental pounds of milk based on a formula using milk sold in 2019. The formula consists of 2019 pounds of milk marketed minus established production history initially determined for 2011, 2012, and 2013, and multiplied by 75% providing for an increase up farm milk production of 5 million pounds. This will provide additional payments retroactive to January 2021 and will continue through 2023. Farms will need to sign up for this supplemental milk production enrollment before they sign up for 2022 DMC.
 
USDA has also changed the income over feed calculation using only the premium/supreme hay price rather than a blend of alfalfa and premium/supreme hay. This change will be made retroactive to January 2020 and amounts to an extra $3.19 per cwt that will be sent to farmers who have been in the program. Going forward, it will add and average of 20.5 cents to the feed price calculation.
 
As a reminder, the DMC program can be utilized with any other marketing program and strategy that is used for risk management. Contract your Farm Service Agency to make sure you are taking full advantage of the program.
 
(More articles can be found on www.dairyherd.com under the Farm Journal Milk tab.)
 
 
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
 




AgDairy Market Update                                     November 29, 2021
 
Uncertainty Is Certain
 
There have been many new challenges that have surfaced over the past nearly two years with uncertainty expected to continue. Instead of things getting better, it seems they are getting worse.
 
There certainly have been and are many issues farmers are facing as they take care of business. There are always the challenges that are prevalent on a day-to-day basis with running a business especially when working with animals. There are so many things that need to be taken care of to keep the farm operating smoothly and profitably. However, there have been many new challenges that have surfaced over the past nearly two years. Labor challenges, product shortages, high feed prices, substantial price increases for good and services, just to name a few. Sadly, many farms have exited the dairy business. Instead of things getting better as time moves forward, it seems as if they are getting worse. Now with another new strain of Covid being discovered, it is uncertain as to the measures that mighty be taken to attempt to contain the spread.
 
During the early month of COVID-19, there was a surge in demand for dairy products as consumers focused more on nutrition as more meals were prepared at home. Dairy products will continue to be in demand as the world continues to deal with Covid. The question is whether demand will hold or continue to grow. There was a huge increase in the sale of packaged fluid milk products for a few months early last year, but that has declined significantly this year in comparison. For example, June 2020 conventional and organic packaged fluid milk sales increased 5.4% above June 2019 while June 2021 packaged fluid milk sales declined 6.7% from June 2020. This leaves June 2021 fluid milk sales 1.3% below 2019. The most recent conventional and packaged fluid milk sales report for the month of September showed a decrease of 1.3% compared to September 2020. The good news is that demand for other dairy products continues to grow offsetting the decline of fluid milk consumption.
 
The market is dealing with opposing events that may keep traders guessing and the market volatile. First, the monthly milk production reports have shown three consecutive months during which milk production per cow has fallen below a year earlier, milk production has declined, and milk cow numbers have fallen. The last time cow numbers fell below a year earlier was in December 2019. In fact, all of 2019 showed cow numbers lower than the previous year. This was in reaction to low milk prices in 2018 and early 2019. Now, we are seeing heavy culling as a result of the significant drought in some areas and as a result of escalating costs for feed and many products. Even with higher milk prices this year than 2019, there is less profitability.
The opposing event is inventory of American cheese has been increasing through October with inventory now 12% higher than a year ago. Total cheese inventory is 8% higher than a year ago. While milk production is declining, cheese inventory remains substantially higher. This results in an uncertain dynamic in the which will keep enhanced volatility.
 
The positive aspect of the market is butter which has been decreasing in inventory since June. This has allowed price to move to the highest level is has been since later December 2019. Nonfat dry milk price has moved to the highest level since August 2014. The result has been Class IV prices reaching and exceeding Class III prices as seen by the futures for the whole of next year.
 
The unknown now will be the level of demand after the end of the year. Much of the orders for the holidays have already been placed and shipped with regular and fill-in order being much of what will take place. Many buyers have already turned their attention to early demand for next year which will be difficult to guess as the market deals with both ongoing and new market disruptions. It will be very important to protect profitable milk prices if, and when, they occur and to use a strategy that will retain flexibility.


(More articles can be found on www.dairyherd.com under the Farm Journal Milk tab.)

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
 


 AgDairy Market Update                               November 15, 2021
 
Is Seasonality Relevant?
 
Some the historical cycles and seasonal price movements are not being followed as they have in the past. We have seen higher milk prices during times of the year when historically they were low points of the year. We have seen low prices when seasonally they should be high points. The bottom line is supply and demand.
 
The dairy market provided hope and then took it away. There have been numerous times over the course of the past year during which Class III milk futures moved substantially higher only to fall back due to the movement of underlying cash. Throughout the course of the past year, cheese prices have been generally confined to a sideways range. Blocks have remained in a tighter price range than barrels making it all the more interesting to realize the impact of perception on the market. After all, it is a futures market in which market participants anticipate what prices might be based on current fundamentals, analysis, USDA estimates, monthly industry reports and trends.
 
The difficulty is deciphering what is factual and relevant, and what is psychological and emotional. We all would like to see much higher milk prices no matter if prices are at $16.00, $20.00 or $24.00 per cwt. We would all like to see dairy prices at the retail level reflected at the farm level. We would all like to see milk prices keep up with the rising cost of goods and services. Yet, the bottom line remains supply and demand.
 
Some of the historical cycles and seasonal price movements are not being followed as they have in the past. We have seen higher milk prices during times of the year when historically they were low points of the year. We have seen low prices when seasonally they should be high points. Global markets are having a greater impact on dairy prices as events in one country can have a significant impact on other countries. That is the reason the Global Dairy Trade auction event that takes place twice per month has risen to prominence as it provides information on World prices.
 
This brings us back to the current market. The Global Dairy Trade auction held on November 2nd, showed price increases in nearly all categories of products traded. Cheddar cheese stood out the most on the auction with an increase in price of 14.1% from the previous event with the average price of $2.29 per pound. Compare this to the current spot price for cheddar blocks on the spot market in the U.S. of $1.75 on November 12th. This supports the strong export sales that are being seen. September exports of cheese were up 20.5% from the previous year.
 
However, this begs the question as to why U.S. cheese price is not higher? This comes down to inventory and the current market environment. Cheese inventory has been growing despite both good domestic and international demand with American cheese inventory 9% higher than a year ago. Cheese inventory has been growing despite the contraction of milk production recently. The current market environment is seeing the buying for holiday demand peaking earlier than usual as packagers and recutters for gift boxes have finished their purchasing. Retail outlets have been ordering earlier than usual to make sure they have product available to consumers when they need it due to production and delivery delays that have been prevalent. There are also more reports surfacing as to some delay in the shipping of dairy products to other countries which may only become worse if the current trend continues. With plentiful supply and purchasing settling down to fill-in demand as orders are placed for the holidays and regular purchasing taking place, inventory may finish the year higher than last year. Unless we see a large decline of inventory on the October and November cold storage reports, Class III milk prices may have limited potential.
 
The same does not hold true for Class IV prices. Strength of butter and nonfat dry milk prices has moved Class IV futures above Class III futures throughout all of next year. It has been quite some time since we have seen Class IV above Class III prices.
 
The bottom line is the need to establish a marketing program and utilize the tools available for protecting prices. Set your marketing plan on strategies that provide protection as well as fixability. Contact us and we can help you with utilizing futures, options and Dairy Revenue Protection insurance.
 
(More articles can be found on www.dairyherd.com under the Farm Journal Milk tab.)
 
 
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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