Stocks Matter…
The April Milk Production report pointed out that there is more milk around than many expected and it increasingly seems that more heavy lifting will be needed to get the markets really rocking. Along the way, markets are coming to grips with the fact that stocks matter – be they commercial or government, visible or off the radar, widely available or tightly held. The recent decision by the EU to put some of its powder back in circulation has brought that reality sharply into focus and had a cooling effect on markets. Cheese has its own inventory issues with total cheese stocks at an all-time record high of 1.01 billion pounds in April. Something is going to have to change in a big way to alter the cheese mountain phenomenon that is casting a shadow over the market. The butter market does not lack for heartburn-inducing qualities . A month ago the butter market seemed capable of over-heating but has since gone through two modest cool-downs. Even so, plenty of upside potential remains as the bid side of the market has reawakened.
Implied Margins Clarify Milk Production Picture
Entering 2010, the prevailing outlook in most published forecasts was for the sharp milk production declines of 2009 to continue, the thought being that lingering effects from low milk prices and associated damage to producer balance sheets would create impetus for further production weakness. The April 2010 milk production data clearly calls those expectations into question, however, as output was up 1.5% year-over-year. Rebounding milk production may seem confounding, but it is not entirely surprising when one focuses on measures of dairy producer health. Implied margin over feed calculations indicate dramatically improved conditions, particularly in Western states.
Economic Jitters Return
Economic conditions have become more turbulent in recent weeks, with unrest centered on sovereign debt issues. For now, the headline problems are in the EU. But there are lurking troubles here, and the rising government share of personal income seems incompatible with keeping those trouble forever at bay. In California, a state in the grips of a budget crisis not unlike that faced by Greece, restaurant performance figures highlight the challenges which, quite naturally, hit on dairy product consumption. Is the US economy - and dairy product consumption - headed for more trouble? We are not facing another 2008-esque calamity, but a "slow down" seems possible - on a global scale.
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