It’s Always Darkest Before Dawn

(May 8, 2012) When will dawn arrive for dairy producers? FC Stone dairy economist Dave Kurzawski reported on Tuesday’s DairyLine that we might have seen the low for cheese this year. 

The spot cheese market saw blocks starting the week unchanged but barrels ended lower Monday. “The barrels were kind of forced to the downside,” Kurzawski said. “We went all the way down to $1.45 then finished a quarter-cent lower.” 

There is buying interest out there and Kurzawski believes we might have hit the low as long as we can maintain the $1.45 to $1.55 price through May. He admits that it is a big request this early on as the butter and powder markets remain weak. 

“There is still room to go to the downside for cheese and Class III,” he said. “I’m not saying that is not going to happen.” Dairy producers may have to make some drastic farm level decisions sooner rather than later as the profit margin on the farm is akin to the second quarter of 2009. 

“There are good times to put hedges on and not so good times, right now we are in that no so good time to be putting a hedge on,” he said.  Even with $14-$15 prices out there, “The market has just taken a severe decline over the past three to four weeks and markets don’t typically go straight down.” 

If you are looking to put some hedges in place, monitor the grain and feed costs, which also could show some weakness moving forward.  

“The market is making it real easy for you,” Kurzawski stated. “As a producer it’s real difficult to put any hedges of any worth on at this point and time.” He advised dairy producers to sit back and be concerned with other aspects of the business rather than hedging. Hopefully a Class III rally in May will change the tune and producers can start to look at places to mitigate some risk.

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