Print Page | Sign In | Join DBA
In the News: Staff Columns

Four items to watch as we head into 2019

Thursday, December 27, 2018   (0 Comments)
Posted by: Joanna Guza, digital communications manager
Share |

By Mike North, president of DBA and Commodity Risk Management Group

Dairy markets have endured a full assault on a number of fronts in 2018. Fourth quarter prices were among the worst in the last decade, rivalled only by 2009 and 2010.

So, as we start a new year, there will be several things to pay attention to as you navigate prices and manage risk. Among them, four things are worthy of special attention.

Cheese inventories
Total natural cheese stocks as reported for the month of September were up 4 percent over the previous year. That was followed by an October figure that was within 5 million pounds off the prior month, but up 8 percent from the prior year. In the last five years, we typically will see 25.7 million pounds of cheese leave inventory in October. This year’s figure is feeling the weight of lost trade and heavy production. Keep an eye on ongoing growth as this will direct buyer activity. Elevated stocks figures provide comfort to the buyer whereas tightening stocks force them to scramble for supply thereby forcing prices higher.

Mexico and China top the list of important markets for us to regain. While steel tariffs remain in place with Mexico, retaliatory cheese tariffs will block sales of U.S. cheese – even with the U.S.-Mexico-Canada Agreement in place. Chinese discussions have been warming up in recent weeks. Should a deal be struck in the days or weeks ahead, clear delineation of how the deal is fully implemented will be vital for markets to find inspiration. Remember that China is still buying a large volume of whey and milk powders. Such a deal will be more important for cheese, butter and other finished products.

Cow numbers
U.S. cow numbers have been in decline since May. With lower fourth quarter prices, that trend likely continues. What remains in question is the pace. Mild declines of cow numbers will likely be offset by the growing milk supply that greets us in spring. More rapid culling may force buyers’ hands as they seek enough milk to keep plants at capacity. Lastly, while the Upper Midwest may be poised to lose cows, the West seems ready to add them.

European milk production

While production is still trending at a rate of 1.3 percent higher over 2017, there is concern about their ability to maintain the growth through winter. A drought in northern Europe impacted feed quality and availability, and the jury is still out as to what extent it will affect production among some of their largest players (Germany, France, Netherlands). Tighter global milk supply will positively impact prices. As we fight for exports, such a development would be helpful.

As another year ends, volatility will not. Be watchful of the changes that lurk around the corner and continue to implement risk management programs that accommodate those changes. Option strategies and the new Dairy Revenue Protection tool offer such flexibility.

Prestigous Sponsors

DBA | 2763 Manitowoc Rd Ste B | Green Bay, WI 54311 | Phone: 920-883-0020 | Fax: 920-857-1063
© 2019 Dairy Business Association All rights Reserved