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Milk undervalued

Cheese models state the intermediate down trend from the high of May is due to bottom now. Valuation indicators suggest cheese is undervalued and weekly based technical indicators are oversold. Models forecast a rally for July. The long term forecast is bullish cheese into at least Sep and now more likely 2009.


Futures have declined a little longer and lower than expected. Futures had been leading cheese and I had hoped the market place to remain so. Not the case. The trade now puts price of futures in-line with the cheese forecast. And the timing is within model parameters. So I expect a bottom this week or next and the forecast is bullish milk futures for Jul. The long term forecast is bullish milk price into Sep at least and now more likely to continue into 2009. Minimum objective for 2008 is $25 C3. Long term valuation studies suggest milk is now worth $30 but in relation to models and the some time slacker trend of milk relative other commodities we may have to wait until 2009 for $30. Pay now or pay more than necessary - later. What I mean by this is extreme mega longterm trend overvaluation does not begin until $34.


Since 1993, I forecast a major weather crop impact to occur 2004 to 2008 for corn. I also forecast the same for wheat and perhaps soybeans. We have seen this decade's weather impact for soybeans and wheat but not for corn. And research allows for additional impact for all 3 markets into end of decade. On a short term basis the crop model which correctly forecast an early year decline and forecast an early Jul improvement now forecasts a peak next week or the following. Suggests risk of lower yield for late Jul. And today, I learned of chance for higher temperatures to come. With small root penetration I leave my long term risk forecast as high for corn production.


The corn user is at risk of $8.50 to $11.00 corn. Last week, I told grain grower followers some of whom were as little as 7% sold to increase sales. But we must keep in mind corn could go much higher.

Soymeal- The long term target for some time now has been 430 to 510 for OCT. Trend may last into year-end. I am in no hurry to state otherwise.

Soybeans-I have advised no more than 1/3 sold NOV for producers and I now feel beans are worth $17 to $18 NOV. Follow the trend. Strong demand and small supply -for now.

Dow stock index- I took a chance a longterm bottom could arrive early but decided to buy on the way up than down. Let someone else blaze a trail first. This has paid off, as I did not buy for the BC3 program and still enjoy 512% from 1991 versus a longterm and hold example from 1991 that is now below 350%. My forecast is bearish stocks for 2008 but I expect a recovery for 2009. I believe the bearish stock market is from over reaction of inflation. In 1974, investors dumped stocks for 60% decline while grain price sky rocketed and gold woke up from a deep sleep. Inflation increased into 1980 but so did the price of the Dow stock index. Guess stock investors should have paid more attention to timing than inflation. So I assume the stock market is more of a financial sector problem while the rest of the nation moves on to better days.


The ISM manufacture index recently posted a rating just over 50% which was a sign the economy was growing not contracting as stated in previous months. I had forecast a turn around first half 2008. Some want to blame commodities for economic woes. They point that bony witch like finger at inflation. The worst kind of inflation is monetary inflation not commodity inflation. Today's higher commodity prices are of commodity inflation. During the 1980s through the 1990s the commodity producer was made to set at the back of the bus for economic gain. The paper or non commodity worlds raked in huge gains which resulted in better jobs and standard of living. For some 20 years old financial wizards (so called) there were $5 million pay checks. And no one complained while the famer bought into competition for lower price. No one cared that the producer of commodities could not compete for top notch labor or afford equipment. This does not mean the producer was not profitable. Some studies suggest improved profitability but to the untrained or higher education brain washed eye the producer was not taking his and her fair weight of gold from the US economy. The free market is currently working at redistribution of wealth and economic boom and if resisted can only lead to socialism. And I forecast a few years for an increase in world socialism. According to some talk show host I have been proven right even in American politics.


Some want to reduce investor presence in the commodity futures and derivatives sectors. One hedge fund manager whom I assume was either paid for, lacked intelligence or was trying to be a social activist stated funds had purchased more than could be produced for some commodities. He was not a commodity investor. A university study was then released that satisfied my contention that commercial hedgers had sold more commodity than was purchased by the funds! And what about the commodity consumer company that raked in $150 million dollars from buy side hedges. Does any one believe their purchase had no impact on price? What about the increased sales as offset. One can not create a futures contract with out a buyer AND seller. There are several factors that have created the perfect storm for higher commodity prices. Let us be cautious of seeking a scapegoat rather than reasonable solution. I was a social activist against low commodity prices. Someday, I may turn to the high side. But, for now, I think things are on track.

My research suggests for past 500 years grain prices have rallied for 2 years for 58% of the time. (So much for the idea of the 1990s that commodities were "good for nothing" as stated by an economist or that commodities only go down.) Eventually supply and demand reverse trend and if the free market was too pessimistic then the next and opposite trend should be one of enlightenment. I would say there are many enlightened bearish commodity traders right now. The same research suggested half of the 2 year bull markets were of 60% to 400%+ price increase! This was similar to this decade's price run. New fundamentals (perhaps), new economics (perhaps) but still same old cyclical price fluctuation. And think about this - there were no investor funds or energy ethanol production or technical analysis or computer based trading 300 years ago and yet price behaved the same. I really love this fact.

Cheese models state the intermediate down trend from the high of May is due to bottom now. Valuation indicators suggest cheese is undervalued and weekly based technical indicators are oversold. Models forecast a rally for July. The long term forecast is bullish cheese into at least Sep and now more likely 2009.

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