Editor’s note: This market commentary is provided by the Dairy Division at FCStone/Downes-O'Neill in Chicago, Ill.
Another day of trading and another day downward in what we have often noted as one of the best-trending commodities markets out there. Milk prices opened weak, rose a bit in spot after a load if barrels was bought, but ultimately prices just sagged without much zest in what was a low volume session with less than 1k contracts traded.
Spot saw blocks go unchanged without any trading activity while barrels fell 1.75 cents on just one trade. The Cooperatives Working Together program announced assistance on exporting four million pounds of cheese; accepting 18 requests for assistance form Bongards, DFA, Darigold and UDA of Cheddar and Monterey Jack to Asia, Middle East, N. Africa and Central America for delivery between Jan and June 2012. But even that announcement did little to excite the dairy markets into much activity following what was clearly an exhausting wave of activity last week. The markets simply slumped yesterday because it was the path of least resistance in front of an uncertain USDA “Milk Production” report, which shows that milk ought to be widely available.
In our opinion, yesterday’s milk production report was bearish. Total milk production was stronger than anticipated due to a large increase in cow numbers and very strong milk per cow. In addition to the strong milk production for December, the revisions made to the November report were very interesting as milk cows was revised lower by 7,000 head; however, milk per cow was revised higher by 6 pounds leaving the total milk production estimate 45 million pounds higher than the previous estimate. Milk production in the 23 major dairy states was up 2.7 percent vs. December 2010, which was well above our estimate for a 2.0 percent increase. Milk cows in the 23 states came in at 8.486 million, easily surpassing our estimate of unchanged at 8.481 million despite the lower revised November estimate. The mild weather across much of the U.S. this winter, in addition to a younger herd due to high culling rates, seems to be allowing for strong gains in milk per cow.
There is very little on this report for the bulls to cling to, as total milk cows and milk production per cow were bearish compared to estimates and against year-ago levels.
Weather concerns in South America continue to put firmness in the grain complex. Beans are leading and dragging corn along with it, U.S. dollar weakness of late isn’t slowing that pull either. We look for the trade community to remain very watchful of current (disappointing) rainfalls in South America.