Market Demand Slow, Milk Production Up
August 2010

There seems to be more factors influencing the upside for more milk production.  Weak economies here and abroad play a key role as well.  A slower pace in the recovery of our economy and overseas economies, will keep the demand flat.  Higher prices for dairy products in Europe and New Zealand/Australia last year have kept us competitive for sales overseas, but expected growth in New Zealand’s may curtail that.   I will try to list some of the major components for better supply than demand, as well as negatives that could influence the ratio the other way.

Positive Factors for Better Milk Production are:
1.    Current Milk Production is strong even with lower cow numbers, due to better output per cow.
2.    Price of milk to the farmer is improving which will keep cows on the farm longer
3.    Slaughter rate of cows is down, ergo more cows available.
4.    Grain markets for feed are down from last year giving a good milk to feed ratio.

Negative Effects that could keep domestic prices higher:
1.    Lower inventories in Butter than the 5 year average is keeping this market up.
2.    Our dollar overseas keeps on fluctuating , but lately it is down, which will keep export sales up.

Factors that could weaken our domestic markets:
1.  New Zealand expected 10%+ growth for upcoming season (starts end of this mo.) could easily curtail our export demand .  Biggest effect probably won’t come till the beginning of next year.
2.    Future markets are flat for both butter and cheese.
3.    Cheese inventories are favorable and nonfat and whey are beginning to build.
4.    If milk to feed ratio continues to be positive, more cows will stay on the farm which could cause an over supply situation come the end of the year.  

With Butter and Cheese prices so high, a sudden change in a drop in overseas prices could cause on markets to come tumbling down around Thanksgiving.  It’s happened more than once before, and keep in mind it will come down faster than it did going up.

To Hunter Walton’s customers, I would like to take the time to thank you for your past patronage, and as always if you have any questions feel free to give us a call.