Rich Posson: A milk crime mystery novel in the making
The near 24% decline in milk futures this year is the crime of the decade in my opinion. Producers have a right to complain. Milk is extremely under valued according to my studies. Milk dragged its feet during the commodity bull run this year with not keeping up with relative price performance, inflation and higher production cost. And then as insult milk futures declined with seasonal decline of some commodities but as a leader in some instances. Interesting that milk decided to follow seasonal trends of other commodities rather than its own.
Action as such as this forces my research opinion that more than ever 2009 should be the day of reckoning. Although I have lowered the target range by one dollar to $24 C3 cash milk I still allow the upper range of $30.
The CSA models suggest the milk market changed its mind about an earlier year 3yr business cycle (long term) bottom and has now used the second opportunity (time for) bottom which suggests the decline should be over. The forecast is now bullish into late 2009 perhaps into early 2010. This month I have been recommending consumers should buy for 2009 and for remainder of 2008. For producers who are forward sold I have recommended a speculative defense strategy in order to reduce risk of selling too cheap. I think investors should consider milk has more opportunities for high return for 2009 than other commodities. Even with this decline it looks as though my recommendation made late last year to buy 2008 milk will be correct (profitable but not as well as forecast) for each and every month.
A technical perspective reinforces the model opinion with long term over sold indicators suggesting under valuation. And some indicators have turned or working toward turning the long side â€“bullish. Spot milk futures retraced to between Fibonacci 50% and 61.8% retracement, which I think is reason enough to seek value.
I believe the dairy industry has incorrectly dialed in negative economic news over positive economic news and with over reaction to price. Traders ought to pay less attention to the economic and financial publications and more to farm side and commodity publications. Food demand at the consumer level has been better than many have assumed.
On 9/4/08 I emailed ALERT subscribers that I felt milk had placed intermediate and long term trend bottoms.
A cumulative study of the Manufacture index (economic indicator ISM) with trend following study suggests the economic trend is still up for this decade. Some restaurant chains have reported good to excellent earnings and growth. At my household we still buy the same amount of dairy products. I still believe (for now) the negative economic factors of the macro economy are more for the paper world than the material world â€“commodities. Global demand for commodities is still good. We do not need a good stock market to have a good economy. Some from that sector are working hard to make the case other wise.