The world’s financial markets were volatile again, last month but really changed very little. Jim Dunn, Penn State Professor of Agricultural Economics reports the underlying issues of a slowing Chinese economy, massive migration to Europe from the Middle East, and unpredictable Russian behavior remain. The corn and soybean crops are good, although not as big as last year. Of course, the strong dollar is undermining export opportunities for most agricultural products, depressing U.S. prices. The excellent crops elsewhere will limit export opportunities for corn and beans further.
The price of butter has risen another 3.3% in the last month. It is not apparent why butter is so strong, although the thinness of the butter futures market probably makes it vulnerable to manipulation. A total of 85 contracts traded yesterday (October 5) compared to 152,000 CBOT corn contracts. While the dairy futures markets are more transparent that the old National Cheese Exchange, this miniscule volume is not a convincing indicator of the state of the nation’s dairy markets. Skim milk powder has risen 16% in the last month, which is peculiar given the world milk supply versus demand. Cheese has fallen 2.8% in the past month, while dry whey continues its skid and is down by 18% since last month.
Dairy exports fell in July, the third consecutive month of reduced exports. The Australian dollar is up 1.9%, the New Zealand dollar up by 2.7%, and the Euro by 0.6%. These higher currency values make U.S. dairy exports slightly more competitive. Nevertheless, the export picture overall is not optimistic, with China holding huge inventories in a falling economy, while European production is higher and U.S. milk production is up.
Dunn estimates the Pennsylvania September all-milk price to be $18.73/cwt, up $1.13 from August 1and the October price to be $19.45. The dairy futures market prices show stable prices for Class III for the rest of 2015 and the first half of 2016, with prices averaging just less than $15.88/cwt. The Class IV futures prices average about $0.19/cwt more that Class III at $16.07/cwt., reflecting the strength in the butter market. The September Class IV price was up $2.18/cwt. from August at $15.08/cwt. Dunn’s forecast for the average Pennsylvania all-milk price for the next nine months is $19.20/cwt., up considerably from recent months.