It’s interesting to observe that milk remains in backwardation across all markets whereas the mechanism it settles against (GDT) is in contango. Something has to give here and we’re leaning towards ground being made up by the futures as opposed to GDT slumping back given the Californian drought situation and ongoing Chinese demand.
There have been substantial rains in California in the last few days but according to the Department of Water Resources, the state would need to experience heavy rain or snowfall every other day from now until May in order to achieve average annual precipitation levels. It was enough to prompt scattered flash-flood warnings, boost the state’s dismal snowpack to 28 percent of average and add 17 feet to the levels of dangerously low Folsom Lake on the American River but Jeanine Jones, deputy drought manager for the state Department of Water Resources was reported stating “we’re still way behind the curve”
With 20% of annual milk production and 40% of milk exports coming out of California – the pressure will remain on milk prices.
