The past week has been filled with disappointment for dairy farmers. The strength of the market two weeks ago gave rise to the potential the bottom of the market was in, and higher prices may unfold over time. The recent price rally of milk futures stemmed from the bullishness of the January Milk Production report. There was an increase in underlying cash prices, possibly because of buyers being more aggressive from concern over a continued decline in milk production. But buying could have been more aggressive due to immediate orders that needed to be filled. It seems as if the latter was the reason for the bump in prices as strength did not follow through. Both Class III and Class IV milk futures eliminated the gains realized after the milk production report and then some. Prices are not yet ready to trend higher. The market must prove itself before a long-term trend develops.
The January Milk Production report showed a large decrease in cow numbers from December which is what traders had anticipated to take place over the past few months. When it finally came, traders were ready to buy into the market. After all, a decrease in cow numbers from one month to the next took place in 2021 with milk prices reaching record highs the following year. Traders were ready to get on the bandwagon early in anticipation of the market repeating that move. Not only were cow numbers down 23,000 head, but milk production declined by 1.1% and production per cow declined 7 pounds from the previous year. This should be considered bullish, but it seems too early to generate any shortage concerns. Lower milk production at a time of lower demand does not result in a tightening supply. However, a few months of similar reports will increase the excitement of the traders and the industry.
March 7, 2024
