Good news: Positive Demand Bolsters Milk Futures
Over the past few weeks we’ve started to see glimmers of hope for a positive swing in milk prices. That support appears to be coming from an awakened demand cycle on the product side, which is impacting Class IV prices.
“The emerging story for the first week of 2019 is really a Class IV one,” says Dave Kurzawski, team leader, dairy risk management consulting with INTL FCStone. He says while butter and powder prices fared well at the end of 2018, nonfat dry milk (NFDM) has recently pushed to new highs as the other prices remain steady. “The net result is a Class IV market, which is not only etching out new high contract prices, but also beginning to affect Class III and cheese futures as well.”
It’s refreshing to note that Class IV prices appear to be rising not because of a shortage of supply, but rather because of renewed product demand. The NFDM rally has been slow and calculated, not haphazard which tends to indicate greater demand support, Kurzawski says.
Prices have been up globally as well, as the last three Global Dairy Trade auctions have been positive. Supply hasn’t changed much over the past few weeks.
“I would argue that we’re seeing a bounce in global demand after a somewhat weak second half of 2018,” says Nate Donnay, director of dairy market insights with INTL FCStone.
How long will this demand support last? It depends on the market, Kurzawski says.
“Perhaps we’ll see the butter markets cool as we move through January. That seems plausible,” Kurzawski says. Although steady butter prices and additional strength in NFDM prices could lead to continued support for Class IV, Kurzawski says “thoughts of the butter market coming down to ‘keep Class IV in line’ seem vastly more pervasive.”
Negative news about the industry doesn’t help demand, either. “Given all of the negative macro-economic headlines and weak leading indicators of economic activity, the improved dairy demand we’re seeing right now could be short-lived,” Donnay says. “Or at least the upside should be capped unless the supply side turns our much weaker than expected.”
This improvement, no matter how long it lasts, is welcome news. “At least for this week, the rising tide of Class IV is lifting all dairy boats,” Kurzawski says.