Milk Production and Wall Street are Similar.

Milk production and Wall Street have similar financial profiles.  They both have an opportunity for long-term financial gains and they both have significant financial volatility.  Success in investing can show huge losses at times, but in the long-term a balanced portfolio will show significant financial gains.  The near-term emotional reaction when the market is falling is to sell, cut losses, and try to invest in more stable things like short term bonds or just hold on to cash.  The financial advice for long-term investments is to ride out the lows, take advantage of lower prices to continue to build a portfolio and wait for the market to improve.  Milk production can be the same.  The real winners, as covered in the prior post, continue to build herds with higher components and more milk per cow to maximize current revenue and be ready for the upturn in component prices.

Recently there have been articles in dairy publications that say the butter prices that have gone up must now fall back.  That is true for the short-term.  The short-term decision would be to discontinue the costs to increase components and milk pre cow and reduce the cost of improving herd productivity.  

SHORT-TERM COMMODITY PRICE TRENDS

Below are the most recent weekly charts of the Agricultural Marketing Service (AMS) prices for butter and cheese, the foundations for producer milk pricing.  

Butter prices have fallen from $3.33 per pound in September to $2.77 per pound in the most recent week.  That is a 17% drop in a short time.  However, even $2.77 per pound is at record highs.

Cheese prices have fallen from $1.95 per pound in September to $1.72 per pound in the most recent week.  That is a 12% drop also in a short time.

Is it time to change modes and start reducing costs even if it reduces revenue?  Would a Wall Street investor recommend liquidating investments with a short-term drop?

Chart I - Weekly Butter Prices

Chart II - Weekly Cheese Prices 

LONG-TERM COMMODITY PRICE TRENDS

The success of long-term investment in milk production is shown in Charts III and IV below.  Over time, commodity prices do increase as retail and wholesale prices of butter and cheese increase.  Recently, the monthly price of butter has dropped by 6% and cheese prices have dropped by 10%.

Is it time to change practices to reduce cost?

Chart III - Long-Term Butter Prices 

Chart IV - Long-Term Cheese Prices

LONG-TERM BUTTERFAT PRICES

Charts V and VI show the change in the value of butterfat and milk protein.  

In 2020, as COVID "stay at home" policies were implemented, butterfat pries fell sharply.  By 2022 butterfat prices returned to their long-term trends.  In the most recent weeks, butterfat prices have dropped by 7%.  Protein prices have dropped by 20% to a decades long record low in October before recovering somewhat in November.

When cheese prices are stable and butter prices increase, the value of milk protein drops.  The extreme drops in butter in 2020 and 2021 coincide with the COVID "stay at home" policies.  When the butter price went down, the protein price hit extreme highs. The opposite has happened in 2023.

Chart V - Long-Term Butterfat Price

Chart VI - Long-Term Protein Price

In the November 7 post, the long-term success of investing in cows and feeds which produce higher components and more milk per cow.   Charts VII and VIII show the gains in Federal Order butterfat levels of the two highest butterfat level Federal Orders, the Pacific Northwest and the Upper Midwest.  They both show the impact of long-term investing.  Both took a brief drop during the COVID mandates, but otherwise show a consistent annual growth in percent of butterfat levels.

Chart VII - Butterfat Levels in the Pacific Northwest Federal Order

Chart VIII - Butterfat Levels in the Upper Midwest Federal Order

How is milk production like Wall Street?  In both cases some are day traders, and some are long-term investors.  Success in volatile markets requires a steady hand and the ability to weather tough times.