History May Be Repeating Itself
History is repeating itself as far as barrel cheese is concerned. On January 12, 2018, barrel chees price reached a level of $1.2175, its lowest price since July 30, 2009 which sent shockwaves through the market. Price rebounded 5.75 cents the following day eventually reaching $1.6525 an May 10, 2018. On June 25, 2018 price reached $1.2050 bringing it back to the lowest level since July 30, 2009 again. In the four days following reaching that level, price rebounded to $1.39 by the last trading day of June. The pattern is similar which makes one wonder if price will have sufficient support to reach back to a similar level as last time.
Blocks have not been quite so dramatic this year as price set a low on January 11th, which was the lowest since December 20th, and then increased reaching $1.7025 on May 8th. Price then reached a low of $1.45 on June 25 and rallied to $1.5550 by the end of June. Similar price pattern, but different levels and not quite as dramatic.
Now that a similar pattern has been established, the question is whether a similar pattern of price increases will be realized. Basic fundamentals are similar, but there are some differences that need to be taken into consideration. Since the lows of January, there have been six monthly milk production reports released. Each of them showed higher milk production than the previous year and each of them did not show the decline of cow numbers that had been expected. There have been six monthly cold storage reports released with all categories showing consistent growth from the previous year with the exception of American cheese which showed lower stocks over the past three consecutive months.
In the political arena, tariffs by Mexico and Canada have been applied and pending tariffs by China on numerous dairy products are to take effect on July 6th unless a last minute change is made. This may cause supplies to back up allowing for more product to be available domestically. So although the current price pattern is similar in the spot cheese market, it will be difficult to see a rebound of cheese prices to the magnitude of what it was earlier in the year. However, a return to low prices will cause a second round of farm liquidations which may have a greater impact on the market.
U.S. dairy farmers are not alone. A recent report indicated numerous dairy farmers in New South Wales are planning to exit the dairy business as processors quoted milk prices this marketing year above last year, but not above cost of production making this the fourth year of operating below the cost of production. Farmers in other countries have also faced this decision.
However, the market most often looks bleak at the low and that may be where we are at right now. A resolution to the tariff situations would go a long way in instilling confidence in the market. We must hope that the current market situation is paving the way for good prices in the near future.