Archive for the ‘FC Stone’ Category

Tough Decisions Await Dairy Producers

November 14, 2014 — Dairy farmers face some tough decisions planning their risk management strategy. Block cheese hit the lowest level since December 16, 2013 on Thursday and the falling dairy product prices mean lower milk prices ahead.    The December 5 deadline is approaching for signing up for the new Margin Protection Program (MPP). They also have the option of the Livestock Gross Margin program (LGM), and there’s the trading of dairy options and futures at the CME.

I ask FC Stone dairy broker, Dave Kurzawski, in Friday’s DairyLine, do dairy producers need anything beyond the Margin Protection plan. Kurzawski admitted that his “crystal ball is not that clear,” but warned if producers go with the MPP, they can’t use the LGM, “it’s one or the other.” The use of dairy options and futures and forward contracts with coops, on the other hand, can be used with either program, he said, but a lot depends on where a producer is located in the country and how much feed has already been purchased for next year.

“It’s a unique year to go into the MPP,” Kurzawski stated, “Because there are some folks who have some higher priced feed in inventory already, which would negate some of those potential benefits that might kick out from the MPP.”

Going into next year, Kurzawski said he believes more people will sign up for it, though he thinks we’ll see “widespread participation but we just don’t know what level people are going to look at it.” The question, he added is “How meaningful it would be if a producer already has feed inventory already put away.”

If a producer elects to use dairy options and futures, what does Kurzawski recommend? While he admits that “things have got a little worse for 2015,” he still believes you can get some “decent coverage that would rival anything you can get on the Margin Protection Program for next year.” He suggests a “min/max type structure where you have a floor that might be around $16 on Class III and maybe $15 on Class IV and a ceiling closer to around $18.” It depends on a farm’s basis, he said.

The use of futures or forward contracts on a portion of their milk at a $17 Class III average or a $16 or $16.50 Class IV average would be a “wise strategy,” he concluded, “But it depends on what their profit margin looks like, where they got feed locked up or where they don’t have feed locked up, so it’s really a case by case basis.”

Good Opportunity to Lock in Profit Margin

September 26, 2014 — Gloomy predictions are appearing of how dairy product prices will fall and pull milk prices down with them. I ask FC Stone dairy broker Dave Kurzawski in

Dave Kurzawski, FC Stone

Dave Kurzawski, FC Stone

Friday’s DairyLine broadcast when he saw this happening and what producers can do to protect themselves.

He started by saying “The market is under pressure right now and, while futures prices have been buoyant this week, spot cheese is under pressure on the block side, although some barrels have come to the market as well.”

Butter has seen some good trading over the $3 mark, he said, but he warned that “The prices won’t be long-lived at these levels without seeing some kind of response by the international market and even the domestic market as we go into Fourth Quarter.”

He said he expects some price pullback but believes butter could potentially remain above $2 per pound for the next six to nine months. “We could lose a dollar theoretically and still be over $2,” he said.    “There’s downside potential on these markets,” he said, but, for right now he sees the market as “choppy” and “sideways.” He quickly added that this “gives producers a decent opportunity to lock in some profit margins through December of 2015.”

I asked him how a dairy producer wills himself to lock in 2015 milk prices which are so drastically lower than current levels. He said that “A lot of people have a hard time looking out those discounted prices and reason that they’re not going to do anything until they get up and look a little bit more like the current October November type prices.” The answer, according to Kurzawski, is “We don’t know if that’s going to happen. Realistically it probably won’t happen. The reality is that you have to look at the profit margin and the profit margin of 2015 looks as good in some cases as it did in 2014, relatively speaking, based on when you lock up your feed costs.”

“You have to look at it from a profit margin,” he concluded. It’s a good idea to leave some upside potential for 2015, “but at this point in time, people have to look at it from a profit margin perspective and then proceed.”

Cash Butter Soars to $2.99

September 9, 2014 – The cash butter price at the Chicago Mercantile Exchange set another record today, rising another three cents to $2.99 per pound. It’s the highest cash price ever on the CME. The price sky rocketed 11.5 cents Monday.

“There seems to be a little bit of a panic out there as far as pricing goes,” said FC Stone’s Chris Hildebrand. “We do continue to see higher prices in the face of shorter supplies.”

The cash butter price was $2.40 per pound at the beginning of August and steadily increased to $2.7750 to start the month of September.

Chicago Prices Defy World Market Levels

August 15, 2014 — We’ll Have a $2 Cheese Market at Least Through the End of August. Incredible cash prices are being seen in Chicago and continue to defy world market levels, with block cheese up 6 cents Thursday to the highest level since April 28, and barrels up 3 1/2-cents. Butter came back to life this week with a vengeance, skyrocketing 16 cents Thursday, to $2.66 per pound, a new high for 2014 beating late July’s $2.62, and may pound on the door of the all time record of $2.81 in September 1998.

FC Stone dairy broker Dave Kurzawski said in Friday’s DairyLine that domestic demand for cheese and butter is still very strong and may continue for some time. “I don’t know FCstonewhere the top of these markets will be,” he admitted, “I don’t know if anybody can answer that question, but what has happened here is that there remains a strong demand for fat and demand for butter.” Cream demand remains strong as well, he said, although cream demand has ticked down a little but “nothing too worrisome from the standpoint of the market bulls.”

Cheese has “chopped sideways, around the $2 level for several months now,” Kurzawski explained, “And now we’re starting to break back to the upside and all the bearish news globally has yet to translate into anything here domestically and so from that standpoint, if there’s still tightness the market might have to go up into a price where they’ll bring some excess inventory to the exchange.” Things are stronger than most people expect, he said, and “No one knows how long it will last but I think we will have a $2 cheese market at least through the end of August.”

The “bearish” news would appear to be the threat of rising milk production and Kurzawski says globally there’s no doubt about that and things will be changing in that regard next year in Europe and there’s concern about good weather in Australia and New Zealand as the El Niño scare “loses its steam,” but “Domestically here we have yet to see any of these real high prices that producers are receiving really translate into much of a big milk production situation in 2014 and we’ll probably see about a 1 1/2 percent increase and that’s just not enough at this point in time,” he concluded.

Global Dairy Prices Weakening

August 1, 2014 — FC Stone dairy broker Dave Kurzawski discussed in Friday’s DairyLine broadcast,  this week’s announcement by New Zealand-based dairy cooperative Fonterra

Dave Kurzawski, FC Stone

Dave Kurzawski, FC Stone

that it has reduced its forecast Farmgate Milk Price for the 2014/15 season by $1. Chairman John Wilson said the lower forecast reflected continuing volatility, with the GlobalDairyTrade price index declining 16 per cent since the start of the season on June 1.

Kurzawski said it’s significant in the fact that it’s forecasting lower prices but he quickly added that Fonterra typically starts with a very conservative estimate and ratchets it up throughout the season “so you’re probably looking at a worst case scenario right now but it is reflective of what is going on in the world so it’s not something that should shock anybody, it’s reflective of weaker global prices.”

U.S. prices right now are among the best in the world, he said, and “The rest of the globe is paying less for dairy products.”    The U.S. Foreign Agricultural Service reports that quota imports of butter for the January to June 2014 period totaled 8.14 million pounds, up 73% from the same period in 2013. June 2014 quota imports of butter totaled 1.23 million pounds, up 89% from last June.

Kurzawski said these are quota imports and don’t concern him much but he is more concerned with “what’s on the horizon.” Quota imports are nontariff, according to Kurzawski, and the 8.14 million pounds represents about a day and a half’s production in the U.S. so it’s a small amount. He admits the percentage increase is big and may foreshadow what is to come but, “when you look at tariff-based imports, they are more telling as they represent a premium that exporters pay to get product out of their country and into the U.S. because of the price discrepancy.”

Kurzawski expects to see that happen over the next five to six months, starting from Europe and then New Zealand, in the Fourth Quarter, and we will likely see an uptick in non quota imports. “That will be more telling of potential downward pressure on U.S. fat prices,” he concluded.

We’re “Kinda Divorced” From World Market

July 18, 2014 — U.S. dairy product prices appear to amaze traders but clouds are appearing on the “price horizon.” Jerry Dryer’s recent Dairy and Food Market Analyst warned
that global milk production will overwhelm demand for the next five years, according to a recent analysis by Goldman Sachs.

We talked about those clouds in Friday’s DairyLine with FC Stone dairy broker, Dave Kurzawski. Kurzawski explained the jump in butter to a “tight market” and said cheese was

Dave Kurzawski, FC Stone

Dave Kurzawski, FC Stone

“acquiescing to that.” He explained that cream is very tight in the country as ice cream sales are good.

“We’re pretty much divorced from the world market,” Kurzawski stated, “But we are still alive and well on the butter market and probably aiming at that $2.50 (per pound) mark.”    Regarding the prediction on milk production, Kurzawski argued that it’s hard enough to look three or four months ahead as to what will happen to milk supply and demand but “They’re (Goldman Sachs) probably not too far off in the fact that we should expect more milk production in 2015 and probably more still in 2016. Without question, that’s the trend that we’re going to be on,” he said, “But right now I still think we’re going to be hovering around 1 1/2 percent for the balance of the year.”

Kurzawski doesn’t see any big moves in the U.S. milk supply but globally, New Zealand coming back strong and will come back strong in the new season “so we have to expect that but more than that is the demand out of China.”

Kurzawski said “It’s hard to believe when you see butter over $2.40 per pound and cheese over $2, at sustaining levels, so it’s easy to become complacent but reality is that China is currently overstocked on powder and anhydrous milkfat and that will eventually make its way through the global market chain and it’s going to come back to roost here in the U.S. with probably lower prices some time by the Fourth Quarter.”

No Crash in Cash Cheese or Butter

June 13, 2014 —  No crash in cash cheese or butter….That’s  the read of FC  Stone dairy broker Dave Kurzawski. Speaking in

Dave Kurzawski, FC Stone

Dave Kurzawski, FC Stone

Friday’s DairyLine, Kurzawski said the cheese  market seems more stable right now and he credited pipeline refilling as buyers  try to replenish supply from previous sales. But, he admits that we’re putting  more milk into the cheese vat right now and he sees that continuing for awhile  and more cheese will be made over the next 30-60 days than less. That will  result in continued pressure on spot prices, he warned, and he expects lows in  the $1.85-$1.90/lb. range.

Butter wise, Kurzawski says the market is tighter right now and he  pointed to strong ice cream sales as cream demand is strong. He doesn’t see much  downside for butter, in fact the “pricing skew,” he said, is directing milk out  of the churn and more into the vat as “manufacturers don’t want to make a ton of  excess butter at these price levels.” He looks for “inflated butter prices” for  at least the next 30-45 days.

DairyBusiness Update editor Lee Mielke asked him how he, as a long time dairy broker, views the Farm Bill’s  new safety net for dairy farmers, the “Margin Protection Program.” Do you, in  any way, see it as a threat or competition to using dairy options and futures  for risk management?

He admitted that there’s a lot of talk of that potentially cannibalizing some of the sell side interest on the futures and options market but he doesn’t quite agree. He called the program “a good tool, a progressive tool as far as from a government perspective, a government program that has been put out.” He said it’s a “real advancement in that sense,” but believes it will be used to “augment a producer’s risk management plan, not replace it.”

Butter Price Showing More Strength Than Anticipated

May 28, 2014 — The CME butter price picked up another 4 ½ cents Wednesday and is now trading at $2.2950 per pound. That’s a bit surprising to some analysts, including FC Stone’s

Bill Brooks, FC Stone

Bill Brooks, FC Stone

Bill Brooks.

“We had a pretty good period leading up to the Easter holiday and exports are moving along pretty decently and that pulled the inventories down in April,” he said.

The California drought also is boosting the butter price. Over 30 percent of our butter production comes from the Golden State.

“Folks are a little nervous and want some supplies,” he said. “The self fulfilling prophecy is that the price moved up again today so they want to get ahead of it before it moves up again tomorrow.”

We’re not getting as much butterfat from our dairy farms either.

“Butterfat remains above average, but as milk comes in it doesn’t have as much butterfat in it so we aren’t getting as much excess of the high protein yogurts and skim milk powders that we’re making.”

The current butter price isn’t a record, but $2.2950 it has some scratching their heads. Butter prices moved above $2.00 in September of 2010 and lasted for nearly a year. Brooks doesn’t anticipate the current prices to last that long, but you never know.

“As long as we struggle with just a percent gain in milk production and depending on what happens with El Nino…it very well could last into the third or fourth quarter.”

Cheese Could Lose Another 5-10 Cents/Butter Will Stay Lofty

May 15, 2014 — The cash block cheese price fell below $2/lb. this week, first time since December 19, 2013, and now even butter may get caught up in the down draft. After reaching

Dave Kurzawski, FC Stone

Dave Kurzawski, FC Stone

the highest level since May 2011, butter dropped Wednesday but was unchanged Thursday. What’s behind the fall and how low will prices go?

FC Stone dairy broker Dave Kurzawski, said in Friday’s DairyLine that the market is “Still trying to figure itself out or trying to fix some of the problems that we had earlier in the “Demand has dropped,” he said, “Courtesy in part to weaker prices internationally and it’s starting to spread into the U.S. market.” “That’s the concern, going forward,” he said, although he still believes there’s “good underpinning demand that we have to work through.”

How low will cheese prices go? Kurzawski looks for “equilibrium within the next 5 to 10 cents to the downside potentially.” “But, as we get into the hot weather in the next 30-60 days, that will become more of the talk of the town and if that happens it’s going to be hard for this market to fall off a tremendous amount from where we currently are.”           Kurzawski doesn’t see a whole lot more down side for the short term, in other words the next several months, “but as we go into the latter part of the year, depending on how New Zealand and Australia start back up their season and how European milk production and sales go, things could slow down more as we close out 2014.”

Will ice cream sales prop up the butter price? Kurzawski said ice cream sales have been really strong so far this year and has been a good boom for butterfat demand. He said a lot of people were caught off guard coming out of the Easter holiday expecting to see cream demand drop off but that hasn’t happened yet.

“And, since we haven’t seen a real heavy flush of milk production in the Midwest, the Upper Midwest in particular, it remains to be seen if that milk goes into butter production or cream production. Going forward, butter prices in particular, are going to stay lofty for longer than I think people can see at this point,” he concluded.

Market Recap – Cheese Rally During Short Week

April 18, 2014 — Last Friday’s small cheese price rally turned into a sustained recovery this week and reversed 3 weeks of declines. The cash blocks tacked on another 5.75¢ this morning on 4 sales, ending the Good Friday holiday-shortened week at $2.28/lb. The 1st 3 sales were at $2.2325/lb., with the 4th sale at $2.28/lb. An unfilled bid again rolled the barrels higher, this time 7¢, following yesterday’s 2¢ rise, and closed today and the week at $2.2575/lb., 2.25¢ below the blocks.

The blocks are up 11¢ on the week, 40¢ above a year ago, but 15.25¢ below their record March 24 peak. The barrels are up 17.75¢ on the week, 48.75¢ above a year ago, but 12¢ shy of their record high.

Four cars of block traded hands this week and none of barrel, the barrel price gains all came on unfilled bids so someone must be breaking out the barbecue grill and needs some cheese. The still climbing NDPSR-surveyed block price hit $2.4149/lb., up 1.6¢, while the barrels averaged $2.3440/lb., down 1.5¢.

FC Stone market analyst Ryan Cox wrote in this morning’s Insider Opening Bell that “International prices have weakened, but demand is decent. Retailers were reluctant to bump up prices.”

Cash butter was unchanged, after 3 days of loss, and closed at $1.89/lb. An offer at $1.90/lb. was again left on the board.   Cash butter resumed its decline this week, after holding all last week at $1.97/lb. It is down 8¢ this week but still 10.25¢ above a year ago. Seven carloads traded hands this week. NDPSR butter averaged $1.9839/lb., up 2.5¢.

Cash nonfat dry milk dropped 2.5¢ this morning on an offer, and closed the day and the week at $1.8650/lb., down4.25¢ on the week. Twelve carloads found new homes this week in the spot market.

Cox says “The nonfat market has been weak and buyers have been stepping aside, expecting prices to weaken further based on international markets.”

Dairy Margins Deteriorating

Dairy margins deteriorated since the end of March due to both weaker milk prices and higher feed costs, according to the latest Margin Watch from Chicago-based Commodity & Ingredient Hedging LLC.

Margins remain strong in nearby Q2 at the 96th percentile of the previous 10 years, while deferred margins are at or near the 90th percentile through the first quarter of 2015. While still very high from a historical perspective, milk prices have started to slip recently following weakness in dairy product values.

Both block and barrel cheese prices have generally been in retreat since late March while cash butter prices on the CME have similarly experienced weakness after flirting with $2.00/lb. recently.

The latest results of the Global Dairy Trade auction reflected the fifth consecutive drop in price, with all products declining except anhydrous milk fat.

Corn prices meanwhile have firmed recently in response to tighter stocks reflected in the April WASDE report along with slow planting progress. USDA reported corn ending stocks down 125 million bushels from March due to a similar increase in the export forecast, with the figure falling on the low end of trade expectations.    USDA also released the first crop progress report of the season, with corn plantings at 3% complete through April 13 vs. 6% on average for this point.

Soybean meal prices are also drawing support from USDA reporting soybean ending stocks down 10 million bushels from March, suggesting a continued tight supply of soybean meal through the remainder of the season.    For more details, log on to