Archive for the ‘Bill Brooks’ Category

Producers Should Remain Profitable in 2015 Despite Lower Milk Prices

October 22, 2104 — No real surprise in the 4.1% jump in milk production for September, given where we were at last year regarding milk per cow. That’s according to FC Stone dairy FCstoneeconomist Bill Brooks, who joined us on today’s DairyLine Radio program to discuss.

“I was looking for 3.6% but knew it could be in the range of 4.0 to 4.2%,” he said.

However, he’s still scratching his head from the strong drop off in cow numbers we had from July to August, even though that is somewhat typical for August. The preliminary September figures show a 2,000 head increase.

“Given the profitability…folks are wondering why there aren’t more cows out there on dairy farms,” he said. “It’s probably do to the rise in slaughter numbers last year and less heifer numbers this year.”

Earlier in the year, before things started taking off, people felt comfortable where the margins were going to be at.

“We did see some additional heifers work their way in to feedlots and slaughter plants… and that’s kind of holding us back on our cow numbers,” he said.

The latest milk production report is the strongest gain we have seen this year, putting us 2.5% above last year’s levels through the end of the year, and perhaps closer to that 4 or 5% range.

We did see a rebound last October in milk production. But our five year average gain for September is only 0.9% and Brooks sees a 1.1% gain for the five year average for the remainder of the year.

“We’re doubling up, if not tripling up where our normal percentage gains have been at for the fourth quarter, or at least it looks like we’re setting ourselves up for that,” he said.

Not only our U.S. producers increasing production, but we are seeing more milk throughout the world, particularly in New Zealand, Australia and Europe.

“Everybody’s producing a lot more milk and we’re working our way to the same situation that we have in the grains and oilseeds,” he said. “Something dairy producers are pleased about because of the lower cost feed ingredients, but we’re working our way towards that on the milk side.”

We’ve seen international prices drop off and some commodities domestically drop off, nonfat dry milk being the largest decline up until we saw the butter price crash the last few weeks. At the moment, butter is recording a little bit of a correction and cheese is holding with a fairly decent price, although barrels have been exhibiting a lot of weakness.

“Partly due to the time of year where folks are sourcing their product for the holiday season – a lot of products have been shipped and that’s helping support cheese and butter prices,” he said. “But eventually their going to get caught up in the same kind of market move that we have seen on the nonfat dry milk side.”

Brooks says it won’t be surprising that all of our dairy commodities will be back down below the $2.00 level by the end of the year.

“Dairy producers will be looking at less revenue for their milk but fortunately looking at a lot lower input costs and profitability is expected to be fairly decent into 2015,” he concluded.

Blocks & Barrels Heading in Different Directions

September 23, 2014 — The CME cash cheese market is seeing quite a spread between the blocks and cheddar barrel cheese price this week. FC Stone dairy economist Bill Brooks joined us on today’s DairyLine to discuss.


CME Butter Continues to Rise

August 19, 2014 — International butter prices have topped out and are starting to work their way lower, but when is that going to take place here in the U.S.? CME spot butter slipped

Bill Brooks, FC Stone

Bill Brooks, FC Stone

a bit Monday but gained 2 1/2-cents Tuesday to rise to $2.66 per pound

“It’s just a matter of time, unless we see some weather related impact out of New Zealand and Australia,” said FC Stone’s Bill Brooks.  We have a pretty healthy spread between U.S. butter prices compared to international prices.

“It does cause some concern about how low prices will end up either later this year or the end of next spring, as folks bring butterfat into the country to take advantage of difference in prices between our level here and what’s going on internationally,” he said.

Here in the U.S. we are anticipating a growing dairy herd, with more milk per cow expected. Historically, the higher prices climb, the farther we fall, according to Brooks. At the moment, these butter prices have been a boon to producers, pushing the Class I and II prices higher.

Cheese prices are also helping the Class III price. We have seen an inverted spread between the blocks and barrels for nearly two months.

“The block market is more than adequately supplied with fairly heavy trading throughout that period,” Brooks said. “As a result the price has been struggling against the barrel price.”

We have a bit of displacement in the marketplace between the types of Cheddar that is in demand, which has been challenging for the industry to get their arms wrapped around because of the quick shifts we have seen.

“With cheese, we haven’t been that out of line with the international market,” he said. “It’s still essentially a domestically driven market.”

Brooks anticipates less pressure on declining cheese prices compared to what we might expect with butter.

Is CME Butter Overvalued?

July 1, 2014 — The CME spot butter price is now trading at $2.50, up 11 cents to start the week Monday. Some analysts believe the price is overvalued based on our current FCstonefundamentals.

“Butter is a Johnny-come-lately,” FC Stone’s Bill Brooks reported on Monday’s DairyLine. “We had the strong powder prices last year and that spread over into the cheese market and it took a long time for butter to get into this mode here.”

Because of the rapid drop in inventories last fall going into the holiday season, both from a domestic and international demand standpoint, buyers became nervous. They went ahead and bought the product even though they probably won’t use it until later this year.

When all the economic activity was taking place and driving other prices up, butter is the one commodity that has not been able to set a new record.

The butter price hit $2.81 in September of 1998, back when the CME traded it only on Fridays. So, we’re 31 cents away from the record price and given some of the gains we’ve seen the last couple weeks, Brooks said it is possible we could get up to that level.

The U.S. is the most expensive place to buy butter at the wholesale level.  The European price (80% equivalent) recently topped $2.11 and Oceania is down to $1.75. Brooks reported that butterfat was moving out of Europe and on its way to the U.S. , but at the same time the U.S. continues to fill export orders.

So we could see a situation on the East Coast where you have a ship laden with U.S. butter heading out and passing a ship coming in with butter from Europe.

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 Spread Narrows

April 15, 2014 — The spread between the block and barrel cheese price was a concern up until yesterday, when the barrel price shot up 8 ¾-cents to narrow the spread with the

Bill Brooks, FC Stone

Bill Brooks, FC Stone

blocks to under two cents.

“With the amount of price decline that we have seen with both the blocks and barrels the last couple of weeks it’s not surprising for us to get a little bit of a correction,” FC Stone’s Bill Brooks told DairyLine.

Even though prices may be steep for cheese buyers, they may want to get some product locked up bringing cheese prices higher for the time being.

“I don’t know if the higher prices are going to have much life to it,” Brooks said. “It is warming up and cows will be producing more, so normally we would see prices dropping off.”

Still, it’s nice to see a bump in prices after dropping nearly 20 cents in the past week.

It’s a light week for USDA reports this week as we gear up for a busy week next week. USDA will release Milk production, Livestock Slaughter, Cold Storage and Commercial Disappearance reports. We’ll also get our Class I base price for May next week.

Current Cheese Prices May Be “Overcooked”

March 25, 2014 – The current record cheese price levels are probably a little misleading, according to FC Stone’s Bill Brooks. Dairy farmers have never seen prices like this

Bill Brooks, FC Stone

Bill Brooks, FC Stone

before, with CME 40 lb. block cheese trading at $2.4325 and 500 lb. barrels at $2.3775.

“We are in a tight market,” Brooks warned on Tuesday’s DairyLine Radio program.  “We haven’t seen a trade for block cheese since February 20th.”

Prices continue to set records because of the world market, weather, feed prices and featured dairy products in store shelves from the last football season and now March madness. But those are going to go away quickly, according to Brooks.

“That’s going to negatively impact our demand and hopefully not make the down-turn potentially worse than what we might anticipate,” he said. Brooks has that feeling that the markets are a bit “overcooked.”  

Even though inventory levels are below a year ago, we’re only three days below the amount of available supply we have in cold storage inventories. However prices are 60 to 70 cents above a year ago. U.S. prices are also 10-30 cents above international prices.

“We’re going to lose that competitive factor that helped us ship a lot of product offshore,” Brooks said. “But the market is always right; we just have to figure out the timing of when it is going to go in the other direction.”

Some producers have put in some risk management positions, like forward contracting with their milk buyer and some are also locking in feed prices. Both have started to work their way higher.

“We are starting to see dairy producers look at that,” he said. “They are being pretty judicious with those positions because they do see this market is continuing to go up.”

It’s more difficult to hit the exact high of the market when trying to sell milk in futures, options or a forward contract. So producers don’t want to miss it by too much and leave money on the table.

Weather, feed costs and feed quality are reasons to layer in protection on margins, according to Brooks. Producers are also looking at a new risk management tool from the new farm bill, and are learning how to implement margin insurance that will protect them against the massive price fluctuations that we seem to have in agriculture.

Profitable Times for Dairy Producers

March 3, 2014 — Dairy producer’s income over feed costs hit a record level gaining both a higher milk price and lower feed costs. The latest numbers show that income over feed more than

Bill Brooks, FC Stone

Bill Brooks, FC Stone

doubled from February of last year.

“It shows that U.S. dairy producers are in for some very profitable times,” FC Stone’s Bill Brooks said on Tuesday’s DairyLine broadcast.

Producers just need to get the milk out of their cows to take advantage of the profitability this year. Brooks expects a slow-down in 2015 based on where futures are trading for milk, corn, and the soybean complex, but still will be slightly above average for next year.

“You have your fingers crossed for livestock producers, but for our dairy producers in general we will have a couple of good years for them to try and build up those balance sheets and get more comfortable on their financial position,” he said.

Looking at prices at the CME – Cash butter shot up 10 cents Friday to $1.88, but has been quiet the first two days of trading this week.

“I believe there could have been end of the month issues,” Brooks reported.

We have seen the butter market pick up on previous Fridays. Six out of nine Fridays this year have seen double-digit trades.

“The butter market is adequately supplied,” he said. “There’s plenty of butter out there in storage but the folks that own it are holding on to it with pretty decent confidence because inventories aren’t burdensome.”

Looking at the current cheese prices – CME blocks are holding at $2.2275, while the barrel price continues to slip, losing 3 1/4-cents on Tuesday to $2.1275.

“I think we’ll see some seasonal declines, but not necessarily large drops,” Brooks said.

Current Prices Reflect a $23.75 Class III Price

Bill Brooks

Bill Brooks

February 4, 2014 —  Record high cheese prices remain unchanged to start the week. FC Stone dairy economist Bill Brooks told DairyLine that the lofty price levels will eventually start to drop. But given our production levels, cheese could remain above $2.30 through February. Currently, CME block cheese is at $2.36 and the barrels are trading at $2.32 per pound. 

“We don’t have a lot of excess product out there and milk production at the farm level hasn’t responded like dairy producers had hoped it would,” he said. 

Forage could be the main culprit, as the quality hasn’t been good enough for the cows to respond to strong milk production. Another factor is below average temperatures for a swath of the country, which pulled some of the feed consumption from milk production to maintaining body condition. 

“This all added up to where we don’t have a great deal of supply,” he said. 

The Ag prices report released last Friday showed a $23.20 All Milk price. With the way prices are now, we’re looking at a $23.75 Class III price. While Brooks is not positive we will see a $23-plus Class III price, dairy producers are looking at some decent profitability with lower input costs.

“Dairy producers have had a couple of good months, and it looks like we’ll have a couple more good months until the time planters start running and how timely a crop gets put in and the breakdown between corn and beans,” Brooks concluded.

2014 Should Be Decent Year

January 7, 2014 — 2014 is shaping up to be a decent year for U.S. dairy producers. FC Stone dairy economist Bill Brooks shares his insights this week on DairyLine Radio: