High Ground Dairy – Monthly Milk and Feed Update

The Big Bounce Theory The U.S. dairy markets continued to deteriorate in the first two weeks of the new year. Class III futures at the CME began trading below $14.00/cwt and producers nationwide were bracing themselves for a bumpy year. Then a bit of support came and futures crept higher for about two weeks. Towards the end of the month Fonterra released a report that downgraded New Zealand’s milk production expectations for the 2014-15 season due to drought like conditions. This caused the U.S. dairy markets to move sharply higher with March – July Class III futures making limit higher (+$0.75/cwt) moves the following day. Memories of the 2013 New Zealand drought which caused prices of whole and skim milk powder to skyrocket to $6,000MT ($2.72/lb) began to make their way into analysts minds. The truth is that the global dairy supply / demand situation is much different than it was two years ago. In 2013 global inventories outside the U.S. are were at severe lows and milk production was poor in most regions of the world. That is currently not the case which is why it is HighGround’s belief that the recent rally seen is a bounce in a bear market, and lower prices are ahead for the U.S. dairy markets. Another observable fact is that New Zealand has been experiencing a great deal of rain over the past couple of weeks. In the first week of February the New Zealand Pasture Growth Index has more than doubled. If the current weather pattern continues there should not be a shortage of forage for New Zealand farmers. 10 day forecasts call for drier weather on the North Island so we will continue to monitor the situation in New Zealand   Click here t