Friday, August 21, 2009

Indicators Show Improvement Ahead

The leading and underlying dairy industry indicators are starting to show improvement. Exchange rates, import statistics, export statistics, and cheese pricing are all trending in a favorable way for the U.S. dairy industry.

The key exchange rate for the New Zealand Dollar vs. the U.S. Dollar is trending to more normal levels. There is, however, still a good way to go if it is to reach the 2008 levels.

As a result, cheese imports from New Zealand appear to be coming off their highs which were reached from the end of 2008 through the first quarter of 2009.

Cheese exports, although not at 2008 levels, are improving and are at levels that were only exceeded in 2008. Will they continue to rise? It all depends on the global price of U.S. Cheese which is largely determined by exchange rates.

The increased levels of support prices has had a dramatic impact on cheese prices on the Chicago Mercantile Exchange (CME). Little of this, however, will influence August Class III prices due to the lag in National Agricultural Statistical Services (NASS) cheese pricing.

There is one statistic that is not positive - cheese inventories are at historical highs. These inventories will have to be worked down before real price increases in cheese can develop through supply and demand.

The USDA released their monthly Livestock, Dairy and Poultry update on August 19. These forecasts do not attempt to make adjustments caused by exchange rate fluctuations. They predict increases to $11.53/cwt for Class III Milk in the fourth quarter of 2009.

To see a significant change in milk prices, the many domestic actions to reduce cow numbers will have to be accompanied by favorable exchange rates so that U.S. Cheese is financially attractive on the world market. The U.S. buys it's cheese on the world market.

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