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It takes grain to make milk

March US milk production was up 4.3% from previous year. The trend of higher production for the past 10 years remains intact.  And even though model research allows for higher production this year, it suggests this year to be an up year for price in the smallest of long term business cycle model trends. The 3-year pattern bottoms this year, and can trend higher into 2013. 

Model research leaves me of the opinion that milk is undervalued.

Within long term trends are intermediate intra-year trends and milk is due for such a bottom now. And for the next two weeks, that price should be higher for May. The next larger trend could propel price higher into August to September. The $14.00s should be support, and objectives range from upper $15.00's to $17.00.

The macro and micro economic picture, including conditions of fundamentals and technical with bias of the cyclical concept, suggests demand is about to rise to press price higher.

Feed costs

Corn model research suggests corn bottomed last week, or will bottom by end of this month for the most important intra-year type of trend. The forecast calls for May to be an up month for price, that still larger trends can lead to a still higher price July through September, and dependent upon weather and crop production. Current research leans toward a crop problem this year, but subject to weekly revision. A long term trend turned up during December of last year, and is set to be up into 2013, but this does not rule out range trade, but it does leave the door open for a significant problem for producing corn, while economies improve, and objectives range from $7.00 to $12.00.

Soymeal rallied better than anticipated and may now slow the pace as corn becomes the leader, but the new high this year compared to last year, also leaves the door open for a trend higher into 2013, or explosive move higher only for this year, and objectives of $440 to $680. But with this comes a script that allows for slightly higher price into summer, and a correction into harvest. Again, it is all about the weather. See economy comments.

Energy cost

Best crude oil model script calls for a higher price by May, and that trend can extend into July to September. Potential for $120 to $153. Natural gas may place a once in a lifetime longterm bottom this year.

Economy

The model remains correct for an improving economy from a bottom placed August last year, and that growth trend should last into 2013, while still larger trends from the 2009 recession bottom are to be up to 2019, and beyond. Per the 2019 forecast, the economy grows for 7 to 12 years per 9-year business cycle that spans 8 to 13 years, that allows for 1 to 3 years for a slowdown that will include at least a 1 year recession. A recession per decade, a bottom of many more years per decade. In recent reports, I covered unemployment that peaked in 2010, and is to decline into 2019. And so the decadal boom is underway. It may be slow at first and speed up later, but is intact. We should not be concerned of China's slowdown unless China GDP declines under 7%. And I doubt that will occur. A slower China economy is still an economy that can burn through huge amounts of commodities. I viewed some indicators published at various Federal Reserve websites, and found support for the model opinion that there was a slump last year, and 2012 is to now be a net growth year.

Stocks

The stock market forecast remains bullish for 2012 into 2013. The DOW stock index should rally to 13,500 to 13,700 by this summer. The objective of 13,300 by first half of 2012 was met with a print at 13,297 on 4/2/12. I remain invested in Brazil, Russia, India, China, and this year for the first time, I added Japan, and Vietnam. I am mostly invested in US stocks. I think the DOW will rally to 15,000 to 17,000 later this decade, perhaps later than some in the trade think, but that is the objectives for this decade.

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Written by Rich Posson

Dairy analyst, Ag Financial Strategies

Free emailed long term business cycle trend letter available from Capturawealth.com.

info@capturawealth.com 

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