Milk production has slipped due to the hot weather and damaged crops, relative to the 2012 drought that by some standards was the worst since the 1930s Dust Bowl.

From the Posson Model business Cycle Report-

The long term 3yr business cycle trend for dairy is up from the low made during 2012 for both cheese and milk prices, and this trend is up until late 2013 to early 2014. Objectives range from $23 to $27 per cwt Class 3 milk. 

A similar trend for butter may peak as early as mid 2013. Objectives range from $2.20 to $2.75 per pound.

The model based opinion currently favors the high end of the objectives range.

The model based opinion performed well for short term trends of DEC milk futures with correct calls for bottoms 9/11, 9/25, and 10/10. Next bottom is due by early next week. Related tops were correctly called 9/20, 10/5, while a top made 10/15 was one day earlier than model script. 

Cheese and C3 milk futures can consolidate a bit during the next few weeks, but the best model script still calls for higher price going into year end.

Feed cost-

The model based opinion was correct for a decline of grain prices from September into October. Current best forecast is that corn made a major L1 intermediate intra-year trend bottom as of week of 9/24, and the trend is now up until late November to early December with objectives as high as $8 to $8.20. The long term trend is up from the low of this year to a top that might not occur until summer 2013, and with potential for $10 to $12. I canceled the opinion corn might not trade over $9.18. A short term trend bottom should occur this week. The model forecast is also quite bullish wheat.

Soy meal is due for a major L1 intermediate intra-year trend bottom as of this week, and should bottom no later than this month, and the trend should be of higher price for November. There is potential to trade to near the current 2012 high, but meal alongside soybeans can lag corn and wheat. The long term trend is up for soy meal, and perhaps to be sustained until summer 2013 month, and with potential for $640 to $680. A short term bottom is favored this week or by early next.

Feed users should have some protection from higher year end and from higher 2013 prices.