Dairy Outlook 102009
description
Transcript of Dairy Outlook 102009
Dairy, Commodities & The Global Economy
Blimling and Associates, Inc.
October 2009
Phil Plourd ([email protected])Bill Curley ([email protected])
Duane Banderob ([email protected])Dallas Sipes Chapman ([email protected])
800-726-9928
SITUATION AND OUTLOOK
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DOMESTIC CHEESE• Market has moved
over the $1.40/lb mark that has served as a key support/resistance area for the past several years
• Is the current peek above the line a preview of coming attractions – as was the case in the last part of 2003 and 2006?
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$1.00
$1.20
$1.40
$1.60
$1.80
$2.00
$2.20
$2.40
30-May 25-Jul 19-Sep 14-Nov 9-Jan 6-Mar 1-May 26-Jun 21-Aug 16-Oct
CHEDDAR: US vs OCEANIA
US Block Oceania
weekly
source: CME, USDA/AMS
GLOBAL CHEESE• US product is a bit
more competitive in the world market vis-à-vis Oceania
• Major difference between now and 2007/08: Australia and New Zealand seem likely to have some product
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DOMESTIC BUTTER
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$0.80
$1.00
$1.20
$1.40
$1.60
$1.80
$2.00
$2.20
30-May 18-Jul 5-Sep 24-Oct 12-Dec 30-Jan 20-Mar 8-May 26-Jun 14-Aug 2-Oct
GLOBAL BUTTER PRICES
US Oceania EU
GLOBAL BUTTER• Fat market is in a
bit of disarray, with significant increases in Europe since early summer, a recent rally in Oceania and the US flat and in the middle
• Stocks seem to be ample between US holdings and EU intervention/PSA
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GLOBAL NDM/SMP• Just like that,
powder prices are up 25-30% globally
$0.70
$0.80
$0.90
$1.00
$1.10
$1.20
$1.30
$1.40
Oct 24 Dec 19 Feb 13 Apr 10 Jun 5 Jul 31 Sep 25
NONFAT DRY MILK/SKIM MILK POWDER
AMS Central
NASS
Europe
Jan-Jun
Oceania
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• Surge in whole milk powder prices in the monthly Global Dairy Trade auction has created a buzz
• Seems tied to pipeline filling and WMP production shortfalls in the EU (where butter/SMP production has been favored)
• Still: some wonder whether these are stirrings of something more across the dairy products complex
WHOLE MILK POWDER!
THE PRESSING QUESTION
•Is this going to be 2007/2008 all over again?
•Some things are the same:•Cyclical downturn in US production•Weak US Dollar• Improving developing economies
•Critical things are different:•Oceania is going to have product available•Stocks of dairy products are at decent levels•US consumer jittery and domestic economy is in early
stages of recovery from massive shock
MILK OUTPUT A BIT SOFTER
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-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
Jan-06 Jun-06 Nov-06 Apr-07 Sep-07 Feb-08 Jul-08 Dec-08 May-09
MILK PRODUCTION: YEAR-OVER-YEAR CHANGE
California
Wisconsin
United States
• Production down year-over-year in August and September – first back-to-back declines since May/June 2004
• Interesting – and telling –divergence between the West and the Midwest
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1,600
1,650
1,700
1,750
1,800
1,850
1,900
1,950
2,000
2,050
2,100
2,150
2,200
2,250
2,300
2,350
2,400
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
YTD DAIRY COW SLAUGHTER
40 weeks/thousand head
Source: USDA/AMS
HEAVY CULLING…• Year-to-date
slaughter activity is at the highest levels since 1996
• Year began with widespread agreement that US herd was too large by 250,000-400,000 head
• Herd contraction so far: about 175,000 head through August
• Heifer pipeline still strong…means slaughter activity has to be all the greater to get cow numbers down
11
…COW NUMBERS DOWN
• In reality, the current period of low prices is not especially extended relative to historical price troughs
• Now, however, we are in month 11 of the low price period…by virtue of the passage of time alone we are probably getting closer to the period’s end
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IT ALWAYS TAKES TIME
$8
$10
$12
$14
$16
$18
$20
$22
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
FMMO CLASS III MILK
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 F 2010 F*
Margin 7.84 7.48 6.13 7.68 5.69 5.91 8.03 7.66 6.05 9.29 7.57 4.99 7.36
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2
3
4
5
6
7
8
9
10
"IMPLIED MARGIN OVER FEED"
US MARGIN OVER FEED• Implied Margin Over Feed is an index of
dairy producer milk revenue remaining after accounting for feed costs
• Years in which the index is less than ‘6’corresponds to years of supply-side contraction, while years above ‘6’ tend to be expansionary
• Producers have been getting mixed signals for months. “Real-time” margins are exceedingly poor, with June’s IMOF reading of 3.72 the lowest in our historical dataset. Meanwhile, futures prices portend better days ahead, with 2010 IMOF projecting to about 7.4. The presumptive challenge: continuing to survive today to get a taste of that better tomorrow.
• Of course the “better tomorrow” has been elusive, with prices consistently failing to live up to expectations conveyed by futures 60-to-90 days previously.
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14
0
50
100
150
200
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
NDM: AUGUST STOCKS
million pounds/commercial holdings
-
50
100
150
200
250
300
350
2001 2002 2003 2004 2005 2006 2007 2008 2009
BUTTER STOCKS
CME
Other
Million Pounds/August 31
HEAVY STOCKS
600
650
700
750
800
850
900
950
1000
1050
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09
TOTAL CHEESE STOCKS 2004-
million pounds
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-10% -5% 0% 5% 10% 15% 20%
Frozen Pizza
Yogurt
Cheese
Butter
Fresh Milk
Ice Cream Bulk
Fresh Meat
Refrig Bacon
Pasta
Refrig Entrees
Juices/Drinks
Orange Juice
Cereal
Cookies
Can Vegetables
Frozen Entrees
Soup-Canned
RETAIL SALES (VOLUME): 4 WEEKS ENDING 10/3
Source: JP Morgan/AC Nielsen
Excludes Wal-Mart, club stores
RETAIL: SOLID
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� Restaurant sales have been up some in dollar terms� Jan: +2.7%� Feb: +2.8%� Mar: +2.5%� Apr: +1.7%� May: +1.4%� Jun: +0.6%� Jul: +0.0%� Aug: +0.8%� Sep: +0.6%� 2004-2008 avg: +5.6%
� Customer counts down� Knapp-Track (Aug): -5%
-2%
0%
2%
4%
6%
8%
10%
12%
2006 2007 2008 2009
RETAIL SALES
Food and Drinking Place
Grocery
FOOD SERVICE SOFT
WORLD WEATHER
•India has been dry, reportedly creating shortfalls in milk production and escalation in dairy product prices…but first two weeks of new season were improved
•Australia remains in drought, limiting potential
•New Zealand season reportedly on track after a slow start
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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Cheese 0.6% 0.7% 0.7% 0.7% 0.8% 0.7% 0.9% 1.2% 1.5% 1.0%
NDM/SMP 1.5% 1.4% 1.1% 1.7% 3.3% 3.9% 3.9% 3.4% 5.1% 2.6%
0%
1%
2%
3%
4%
5%
6%
7%
EXPORTS AS % OF MILK PRODUCTION
Source: USITC data; Blimling estimates
2009 through August
EXPORT GAP: STILL BIG• Is this the chart that
explains everything about where markets are at today?
CURRENCY
•Few are bullish the US Dollar
•Sense in some quarters is that the Administration is not especially eager to defend the US Dollar’s value…some even suspect that some sort of stealth devaluation is one way out of the mounting debt situation
•We would view currency has having a generally positive bias for US dairy prices, though the impact is not the same for every commodity
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FORECAST
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•©2009 Blimling and Associates Inc.
• This information is carefully compiled but not guaranteed to be complete or free from error, nor does it constitute a solicitation to buy or sell futures/options contracts
• Past performance is not indicative of future results
• This has been prepared for the exclusive use of clients of Blimling and Associates, Inc. Reproduction in part or in whole without written permission is strictly prohibited
•Want a copy of a slide or graphic? Contact Dallas Sipes Chapman at 800-726-9928 or by email at [email protected]
THE FINE PRINT