(August 21, 2012) USDA’s July milk production came in “more bearish than expectations,” according to Dave Kurzawski, FC Stone dairy broker. “I think the wide variety of market participants were looking for a negative number when actually it came in at 0.8%,” he said.
He said the seeds were already sown for declining cheese prices prior to the milk production report as prices have been priced out of the market. Recent cheese prices have been ranging from $1.80 to $1.90, and Kurzawski said, “that really priced us out of the market from an export perspective, and the summer doldrums has put demand domestically lower, and any export business that we hoped to have, we kind of shut the door on that when we got over $1.80.”
Also, just because feed prices are up, doesn’t necessarily mean the cheese or milk price is going to follow. Kurzawsk said we have to weigh the supply versus the demand. And demand is pretty quiet, but he doesn’t expect to see a big drop in the cheese price, although it could be pushed back down into the $1.70’s . “At that point you start to see the buyers step out of the woodwork and try to get some cheese coverage.”
As far as Class III is concerned, you have a pull back that is now starting, a corrective pullback that doesn’t necessarily mean that the “on farm economics are repaired or there’s anything that is real bearish out there from that standpoint.”
Don’t expect the Class III price to go up just because we are in a bull market. There will be periods of setbacks, and Kurzawski believes we are in one of those periods right now.
“The reality is, we have gone from $14 in May to $20 in the middle of August for Class III futures, and there ought to be some kind of correction here to the downside.”
“The weather has been baked-in, but what has not been baked-in is the poor on dairy farm economics, and that’s something we are going to have to be wrestling with not for another 30 to 45 days but probably the next 3-6 months, and maybe longer ” he said.