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Milk production peaks in May.

Agriculture.com Staff 02/13/2016 @ 11:55pm

The trend of monthly milk production peaks in May and declines into February and there is no reason to expect 2009 to be counter this strong seasonal tendency. In addition the industry will normally store milk as solid products like butter and cheese until end of July when the serious production deficit begins. With the poor economics for the producer there is increased odds for larger than normal seasonal decline in production and this characteristic can last through 2010.

Dairy farmers around the world are complaining of low milk prices and some US farmers launch mini styled revolts. Dairy farmers are being asked to not only survive a recession but to pay for the recession impact of other businesses within the food chain of milk from the farm to the store. So, unlike all other commodities some are making a fortune from the dairy farmers dilemma. It must be nice for some one to pass on recession risk to some one else. I take this view point from the fact that milk declined far more than necessary and has not recovered as fast as other commodities and the farmer is now losing billions. And this when supply is in balance and there is no need to tell the farmer to stop producing.

So, let us now consider some evidence. In December 2008 the ISM manufacture procurement index crashed at the same time cash milk and milk futures crashed. So far this year this economic indicator increased by 30% suggesting the industries had over reacted and the economy was in recovery. Milk on the other hand rallied by just 9%, a difference that is barely noticeable on my price charts. In addition the crude oil market crashed in 2008 and along side milk and so far 2009 spot crude oil has rallied by 100% while milk rallied by 9%. The US dollar has declined about 11% from its 2009 high and a decline in the dollar is assumed to increase export demand and relate to higher price support for commodities. Milk rallied 9%. The stock market (Dow index) was up by 30% from low 2009 to early June trade but milk was up 9%. The Goldman Sachs commodity index ( a basket of commodities) was up near 36% from the 2008 crash bottom while milk was up 9%. The financial crisis has come to an end with a rally of interest rates. This is normal behavior when making an economic bottom and normally coincides with higher commodity prices meaning it is not a negative economic factor for commodities. The 10yr Tnote rallied 64% (low 2% to mid 3%) but milk rallied 9%.

And so let us look at the biggest of day to day, year round input cost for dairy farmer to produce milk, that being corn and soymeal as feed inputs. Corn rallied to a new record high in 2008 and as I had correctly forecast years in advance and from business cycle models -CSA. In 2008 corn crashed but not as severe as milk and its crash 2008 bottom was still 70% above its lowest price of this decade. And yet milk declined to within 8% of its lowest price of this decade. In addition from the open price of the crash low month of December to today corn has increased by near 26%, while milk increased by 9%. Soymeal crashed in 2008 but bottomed near 60% above its lowest price this decade and rallied by as much as 52% for 2009 while milk rallied 9%. And so it should not take a college degree dairy professional to see that the cost of production and the milk price leaves farmers at risk of bankruptcy.

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