Source: FAPRI, University of Missouri
I hear what the FAPRI folks are saying about a stronger U.S. economy, but also have to hope that we are not totally wedded to it. Prospects for the economy are not particularly bright. Unemployment seems to have stalled at about 10 percent, which is high by historical standards and may now represent a “new normal.” Also, demand for milk is inelastic, meaning people still need to buy it regardless of whether the price is going up or down. “There are few cheaper substitutes for dairy products, so demand is not tied as tightly as some think to the overall economy,” says Dave Kurzawski, dairy broker with Downes-O’Neill in Chicago. “Milk prices will rally — and likely before the talking heads are telling us about the robust economy,” he adds. But when will prices rally? Or, perhaps more pointedly, when will cheese prices stop sliding on the Chicago Mercantile Exchange (since they usually portend where milk prices are heading)? “We don’t know what the ‘bottom’ will be,” Kurzawski says. “We suspect it is close, but that won’t prevent it from dropping further still. What we can suggest is that buyers are by and large in ‘greed’ mode. That is not to say they have a personality flaw. It is indeed what markets are made of: greed and fear,” he says. “So long as there is cheese for sale, buyers will look for a cheaper price. And since our abundance of cheese and sluggish demand have been fundamental hallmarks so far this year, buyers have little incentive to worry about higher prices,” he adds. — Tom Quaife, editor
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