US Dairy Commodity Price Forecast Snapshot · 2014-08-13 · Risks to the HighGround Forecast 12...

12 August 2014

US Dairy Commodity Price Forecast Snapshot

HG Dairy Forecast Commentary

12 August 2014

2

Eric Meyer Office: +1 312 604 3080 [email protected]

Stronger-than-expected US milking herd growth in Q2 and sharply lower feedcosts to come during second half 2014 give us more confidence that USDA’s 3.5%YOY milk production growth July-Dec will be achieved.

Combine the increase in US milk output with strong gains already made in NZ andEU-28 and the supply situation appears to be much better than it was six monthsago.

At the same time, a number of other bearish factors have been introduced to theglobal marketplace over the past few months sending New Zealand whole & skimmilk powder, anhydrous milkfat (AMF) and butter prices plunging. This promptedFonterra to reduce their 2014/15 payout forecast to their farmers by more than14%. Commodity price declines in the EU has a number of cooperatives loweringtheir farm gate milk prices as well.

mailto:[email protected]

HG Dairy Forecast Commentary

12 August 2014

3


US cheese and butter markets will continue to remain much higher than global competitors through Q3and may extend into Q4 due in part to inventories remaining well behind 2013. Also, domestic cheeseand butter demand has remained robust with little to no erosion as would have been expected withextremely high prices this year.

CME spot NDM prices have plunged over the past month and US dairy now finds itself largelyuncompetitive on the global stage. Even though NDM exports have remained at record levels throughJune, expectations are for volumes to roll back considerably during the second half of the year.

The US will have a difficult time competing in the international market for cheese and butter at today’slevels once product becomes available from Oceania during Q4. Last season, NZ focused on whole milkpowder to service the Chinese market. But with milk powder interest from China drastically diminishedfrom the hyper-growth period (Q4 ’14 thru Q1 ’15), NZ will shift some production back toSMP/butterfat and cheese this season to capture better stream returns for their farmers. NZ will likelywin back some of the market share lost to the US and EU over the past 12 months.

The HighGround Dairy forecast reflects some of the bearish indicators recently introduced to themarkets. Annual 2015 cheese, butter & NDM prices are projected to be 17.6%, 18.5% and 21.6%,respectively below 2014’s estimated annual averages.


Risks to the HighGround Forecast

12 August 2014

4


Upside RisksAt present, bullish “red flags” seem few and far between as the US remains on an island with respect to our cheese and butter prices that have not yet been impacted by global market conditions.

China’s Return: China remains the 800 pound gorilla that can swing a market bullish or bearish by flexing

their import muscle. At present, they appear to have stepped away from the market due to robust internalinventories as well as stabilizing domestic milk production. When they will be back, and to what extent froma demand standpoint, are the major question marks.

California Drought: Nearly the entire state California is under “Exceptional Drought” as labeled by

USDA’s Drought Monitor from Aug 5. High milk prices and declining feed commodity costs have made thesituation tolerable for CA producers in 2014 as groundwater has proven to sufficient enough to handle thisyear’s needs. However, local forage/hay costs have skyrocketed of late and if the state does not get ampleprecipitation during the upcoming winter season, it could be devastating to the state’s agriculturalcommunity. California’s milking herd has remained flat with ZERO growth over the past two years.

India Monsoon (or lack thereof): Rainfall is expected to be 87% of normal during this year’s Indian

monsoon season, its lowest since 2009. In their key dairy region (Uttar Pradesh), season-to-date monsoon rainfall is 33-48% below normal. The government withdrew its 5% export incentive for skim milk powder last month and is expected to move sharply less volume off-shore for the remainder of the year. During H2 2013, India exported 64,197MT (142 million pounds) of SMP, a 77% increase from 2012. Jan-May ‘14 SMP exports were down 21% YOY.


http://droughtmonitor.unl.edu/

http://www.imd.gov.in/section/nhac/dynamic/Monsoon_frame.htm


12 August 2014

5


Downside RisksIn our view, the swift price decline on the CME spot NDM market over the past month is the “canary in the coal mine” of what may lie ahead for the US dairy market. Remember, the rising NDM tide lifted all boats last year (click link for article). It can have the same effect to the downside as well.

Russia Import Ban: Last week, Russia announced a ban on imports of a number of food products (including

dairy) from the US, EU, Ukraine, Australia, Canada and Norway. Russia is the world’s biggest cheese and secondlargest butter importer. While the US/Russia borders have not been open to dairy product trade since 2009, Russia isthe EU’s largest customer for both products. In 2013, Russia imported 462,956MT of cheese (1.02 billion pounds),66% of that from the EU-28 and Ukraine. 160,130MT (353 million pounds) of butterfat was imported by Russia lastyear and of that, 24% originated from EU and Ukraine. Imports from Belarus are not reported by Russia’s CustomsCommittee but according to BELSTAT, Belarusian exports represented 29% and 38% of Russia’s total 2013 cheese andbutter needs.

While Belarus, New Zealand and South American countries stand the most to gain from this embargo, it seemsunlikely that these volumes can be made up. IF the ban remains in place for dairy (and Russia does has loopholes inthe decree to deem certain foods ‘essential for infants and children’), this would cause a major backup of cheese andbutter stocks in the EU over the next 12 months and would be undoubtedly bearish to the global marketplace.

China’s Return: As stated in our “Upside Risks” section, China remains a wildcard and can contribute to either

the global milk powder market staging a comeback or continuing to remain under pressure if they fail to return to thetable with strong demand. During the first half of 2014, China has imported a staggering 686,123MT (1.5 billionpounds) of whole and skim milk powder, 74% more than last year. Over the past nine months, the world’s dairyfarmers have been given a signal to produce a lot more milk - and they have responded. If China cannot maintainthose lofty growth targets, supply will likely outstrip demand in the coming year.


http://cheesemarketnews.com/guestcolumn/2013/21jun13_02.html


12 August 2014

6


Downside Risks, continued..

Competing in the Global Marketplace: Global dairy supply/demand fundamentals have clearlyturned bearish as the Global Dairy Trade Price Index (a weighted average across a basket ofcommodities) has fallen by more than 40% since February and set a new two-year low last week.

Yet US cheese, butter and dry whey prices remain at extremely inflated levels to the rest of the worldmarket. Fonterra recently revised their 2014/15 forecast payout to their farmers down more than14% to NZ$6.00 per kg of milksolids. When converting that price back to a US equivalent taking intoaccount US fat and protein standards and the currency differential, HighGround estimates an all-milkprice range of $15.50-15.75/cwt. Current Class III and IV milk price averages are $18.88 and$18.41/cwt, respectively (Sep ‘14 – Aug ’15, Aug 12, 2014 settlement), and the USDA latestprojection pegs the 2015 All-milk price midpoint at $20.25/cwt.

HighGround finds it EXTREMELY difficult to believe the farm-gate milk price spread between NewZealand and the US can remain in place without causing a significant decline in US dairy exportsthis coming season. As US prices have been led higher by a surge in exports of all dairycommodities (and the signal to produce more milk as a result), we believe the potential for the USmarket to make a considerable move lower (and beyond our forecast declines) is a realisticscenario unless a sharp global market recovery takes place to tighten the spread.


US Cheese Market Forecast

12 August 2014

7


Month

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

Mar-13

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Ann Avg

2012 1.5546$ 1.4793$ 1.5193$ 1.5039$ 1.5234$ 1.6313$ 1.6855$ 1.8262$ 1.9245$ 2.0757$ 1.9073$ 1.7448$ 1.6980$

2013 1.6965$ 1.6420$ 1.6240$ 1.8225$ 1.8052$ 1.7140$ 1.7072$ 1.7493$ 1.7956$ 1.8236$ 1.8473$ 1.9431$ 1.7642$

2014 2.2227$ 2.1945$ 2.3554$ 2.2439$ 2.0155$ 2.0237$ 1.9870$ 2.0035$ 2.0200$ 1.9720$ 1.9280$ 1.8092$ 2.0646$

2015 1.7154$ 1.7255$ 1.7039$ 1.7307$ 1.7359$ 1.7369$ 1.6949$ 1.7137$ 1.7311$ 1.6931$ 1.6610$ 1.5615$ 1.7003$

H1 2015 Avg: 1.7247$ H2 2015 Avg: 1.6759$ Forecasted

$1.00

$1.20

$1.40

$1.60

$1.80

$2.00

$2.20

$2.40

$2.60

Jan-12 Jan-13 Jan-14 Jan-15

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CME Block Cheese Price Forecast

Actual Forecast CME Futures 8-11-14


US Butter Market Forecast

12 August 2014

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Month

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

Mar-13

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Ann Ave.

2012 1.5831$ 1.4273$ 1.4895$ 1.4136$ 1.3531$ 1.4774$ 1.5831$ 1.7687$ 1.8803$ 1.9086$ 1.7910$ 1.5590$ 1.6029$

2013 1.4933$ 1.5713$ 1.6421$ 1.7197$ 1.5997$ 1.5105$ 1.4751$ 1.4013$ 1.5142$ 1.5388$ 1.6126$ 1.5963$ 1.5866$

2014 1.7756$ 1.8047$ 1.9145$ 1.9357$ 2.1713$ 2.2630$ 2.4624$ 2.3633$ 2.2751$ 2.1780$ 1.9796$ 1.6863$ 2.0675$

2015 1.6603$ 1.6390$ 1.7177$ 1.7220$ 1.7030$ 1.7065$ 1.7049$ 1.7262$ 1.7461$ 1.7149$ 1.6736$ 1.5134$ 1.6856$


$1.00

$1.20

$1.40

$1.60

$1.80

$2.00

$2.20

$2.40

$2.60


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CME Butter Price Forecast



US Dry Whey Market Forecast

12 August 2014

9


Month

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

Mar-13


2012 0.6876$ 0.6400$ 0.6107$ 0.5921$ 0.5389$ 0.5013$ 0.5023$ 0.5352$ 0.5846$ 0.6205$ 0.6480$ 0.6610$ 0.5935$

2013 0.6503$ 0.6393$ 0.6048$ 0.5741$ 0.5765$ 0.5738$ 0.5804$ 0.5778$ 0.5791$ 0.5731$ 0.5831$ 0.5706$ 0.5902$

2014 0.6025$ 0.6314$ 0.6554$ 0.6774$ 0.6745$ 0.6789$ 0.6890$ 0.6628$ 0.6396$ 0.6329$ 0.6382$ 0.6400$ 0.6519$

2015 0.6276$ 0.6080$ 0.5999$ 0.6009$ 0.6041$ 0.6034$ 0.5981$ 0.5852$ 0.5777$ 0.5815$ 0.5920$ 0.5977$ 0.5980$


$0.40

$0.45

$0.50

$0.55

$0.60

$0.65

$0.70

$0.75


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USDA-AMS Announced Dry Whey Price Forecast(CME Futures)



US WPC-34 Market Forecast

12 August 2014

10


Month

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

Mar-13


2012 1.5239$ 1.5271$ 1.5091$ 1.4195$ 1.3010$ 1.1977$ 1.1401$ 1.1272$ 1.1862$ 1.2283$ 1.2358$ 1.2483$ 1.3037$

2013 1.2606$ 1.2472$ 1.2150$ 1.2378$ 1.2786$ 1.3172$ 1.3518$ 1.3670$ 1.3670$ 1.3670$ 1.6046$ 1.6908$ 1.3587$

2014 1.7663$ 1.7799$ 1.7694$ 1.7682$ 1.7530$ 1.6612$ 1.6089$ 1.4919$ 1.4073$ 1.3882$ 1.3870$ 1.3888$ 1.5975$

2015 1.4449$ 1.4624$ 1.4563$ 1.4850$ 1.5125$ 1.4988$ 1.4649$ 1.4137$ 1.3811$ 1.3988$ 1.4257$ 1.4500$ 1.4495$


$0.80

$1.00

$1.20

$1.40

$1.60

$1.80

$2.00


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USDA Central & West Whey Protein Concentrate 34% Midpoint Price Forecast

Actual Forecast


US Lactose Market Forecast

12 August 2014

11


Month

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

Mar-13


2012 0.8552$ 0.8600$ 0.8600$ 0.9126$ 0.9100$ 0.8783$ 0.8383$ 0.8261$ 0.8250$ 0.7850$ 0.7850$ 0.7718$ 0.8423$

2013 0.7314$ 0.7187$ 0.6838$ 0.6439$ 0.6450$ 0.6450$ 0.6310$ 0.6393$ 0.6393$ 0.6393$ 0.6430$ 0.6362$ 0.6580$

2014 0.5952$ 0.5950$ 0.5983$ 0.6175$ 0.5959$ 0.5699$ 0.5473$ 0.5617$ 0.5588$ 0.5782$ 0.5748$ 0.5747$ 0.5806$

2015 0.5724$ 0.5711$ 0.5884$ 0.6289$ 0.6400$ 0.6539$ 0.6844$ 0.6963$ 0.6873$ 0.6988$ 0.6904$ 0.6880$ 0.6500$


$0.40

$0.50

$0.60

$0.70

$0.80

$0.90

$1.00


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USDA Central & West Lactose Midpoint Price Forecast

Actual Forecast


US NDM Market Forecast

12 August 2014

12


Month

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

Mar-13


2012 1.3942$ 1.3792$ 1.3310$ 1.2514$ 1.1551$ 1.1023$ 1.1744$ 1.2543$ 1.3768$ 1.4636$ 1.5143$ 1.5384$ 1.3279$

2013 1.5601$ 1.5559$ 1.5208$ 1.5312$ 1.6374$ 1.6878$ 1.7272$ 1.7706$ 1.8085$ 1.8366$ 1.8892$ 1.9537$ 1.7066$

2014 2.0335$ 2.0783$ 2.0897$ 2.0191$ 1.8768$ 1.8633$ 1.8617$ 1.7664$ 1.7041$ 1.6285$ 1.5445$ 1.4912$ 1.8298$

2015 1.4536$ 1.4196$ 1.3915$ 1.3971$ 1.4241$ 1.4482$ 1.4594$ 1.4564$ 1.4516$ 1.4390$ 1.4168$ 1.4002$ 1.4298$


$1.00

$1.20

$1.40

$1.60

$1.80

$2.00

$2.20


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USDA-AMS Announced Nonfat Dry Milk Price Forecast(CME Futures)



US Class III Milk Forecast

12 August 2014

13


Month

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

Mar-13


2012 17.05$ 16.06$ 15.72$ 15.72$ 15.23$ 15.63$ 16.68$ 17.73$ 19.00$ 21.02$ 20.83$ 18.66$ 17.44$

2013 18.14$ 17.25$ 16.93$ 17.59$ 18.52$ 18.02$ 17.38$ 17.91$ 18.14$ 18.22$ 18.83$ 18.95$ 17.99$

2014 21.15$ 23.35$ 23.33$ 24.31$ 22.57$ 21.36$ 21.60$ 21.36$ 21.23$ 21.03$ 20.55$ 19.55$ 21.78$

2015 18.37$ 17.90$ 17.83$ 17.83$ 17.92$ 17.99$ 17.82$ 17.64$ 17.74$ 17.69$ 17.39$ 16.64$ 17.73$


$10.00

$12.00

$14.00

$16.00

$18.00

$20.00

$22.00

$24.00

$26.00


$ pe

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Class III Milk Price Forecast



US Class IV Milk Forecast

12 August 2014

14


Month

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

Mar-13


2012 16.56$ 15.92$ 15.35$ 14.80$ 13.55$ 13.24$ 14.45$ 15.76$ 17.41$ 18.54$ 18.66$ 17.83$ 16.01$

2013 17.63$ 17.75$ 17.75$ 18.10$ 18.89$ 18.88$ 18.90$ 19.07$ 19.43$ 20.17$ 20.52$ 21.54$ 19.05$

2014 22.29$ 23.46$ 23.66$ 23.34$ 22.65$ 23.13$ 23.78$ 23.24$ 22.19$ 21.14$ 19.77$ 18.22$ 22.24$

2015 17.22$ 16.94$ 16.84$ 17.09$ 17.25$ 17.42$ 17.53$ 17.55$ 17.61$ 17.46$ 17.10$ 16.50$ 17.21$


$10.00

$12.00

$14.00

$16.00

$18.00

$20.00

$22.00

$24.00

$26.00


$ pe

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Class IV Milk Price Forecast



HighGround Dairy Market Intelligence

Fundamental Analysis Package

Breaking news updates impacting global dairy markets

Daily CME Spot market & Daily News Wire emails

Weekly & bi-weekly international price reports

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Detailed monthly analysis on critical US reports including Milk Production, Cold Storage, Dairy Products, etc.

US dairy commodity price forecasts

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Simple, easy-to-read technical comments that analyze the behavior of dairy futures trading activity at the Chicago Mercantile Exchange

Support and resistance levels along with short and long term trends identified using a variety of mathematical technical indicators

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Monthly report analyzes the weekly futures charts of all CME dairy commodities analyzing medium to long term market trends

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Questions? Contact Eric Meyer @ +1 312 604 3080 or email

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http://www.highgroundtrading.com/dairy

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Disclaimer

HighGround Dairy is a division of HighGround Trading, LLC. ("HGT"). HGT is registered as an Introducing Broker with the Commodity Futures Trading Commission and an NFA Member.

Futures and options trading involves risk of loss and is not suitable for all individuals. Therefore, individuals should carefully consider their financial condition in deciding whether to trade. Option traders should be aware that the exercise of a long option will result in a futures position. The valuation of futures and options may fluctuate, and as a result, clients may lose more than their original investment. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

All information, communications, publications, and reports distributed by HGT shall be construed as a solicitation for entering into a derivatives transaction. HGT does not distribute research reports, employ research analysts, or maintain a research department as defined in CFTC Regulation 1.71. Copying, reproduction, modification, distribution, display or transmission of any of the contents in this document for any purpose without the prior written consent of HighGround Dairy is strictly prohibited.

While every reasonable effort is made to ensure that the information provided in this presentation is accurate, no guarantees for the accuracy of information are made.

HighGround Dairy

Eric MeyerPresident

209 W. Jackson, Suite 701

Chicago, IL 60606

Phone: 312-604-3080

Cell: 312-953-3078

Email: [email protected]


US Dairy Commodity Price Forecast Snapshot · 2014-08-13 · Risks to the HighGround Forecast 12...

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Transcript of US Dairy Commodity Price Forecast Snapshot · 2014-08-13 · Risks to the HighGround Forecast 12...