Thursday, July 22, 2010

Supply Tightens

June milk production Numbers have not been out a week and there are abundant signs of short milk supplies. Dairy Market News overview states:

FLUID MILK: Weather conditions are having bigger impacts
on the milk flow across the United States as the summer season
progressed. Production declines are noted across many regions as
well as drops in milk components. Hot, humid conditions in the
Northeast and Middle Atlantic regions are causing significant
production declines and causing milk plants to run on reduced
schedules. Milk production in the Southeast has moderated and
being attributed to increases in heifers in the region offsetting
seasonal declines. Upper Midwest milk output is dropping with
weather conditions the main reason. There is good demand for
surplus milk and offerings are demanding premiums of up to $3
above class usage, unusual at a time when discounts are normally
needed to move milk. Production of milk is trending lower in
California, Arizona, and New Mexico. Declines in the fat and
protein levels of incoming milk are commonly noted. Conditions
are making heat abatement measures necessary, but less effective
as humidity levels increase. Milk supplies in the Northwest,
Idaho, and Utah are seasonally steady and plants are able to
handle the current flow. Bottled milk demand is trending along
summertime patterns. There are areas where retail features are
moving more milk along with some strategies of offering
reduced/skimmed milk pricing to allow bottlers to capture more
cream. Cream markets remain tight and characterized by good
demand and higher multiples.

Those multiples are based on current CME butter price. DMN states multiples as high as 170, which means 170% of the CME butter price per pound of actual fat.

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