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semndairyguy
Veteran Contributor

Musings from the Milkhouse

Some very intersting stuff this past week. First off, we seen Class III go limit down in  the nearby's only to gain a portion of it back before closing down again Friday. The dollar showed some strength on Friday and that coupled with the fact that US cheese is now more expensive than the world price, has some worried that exports may slow. Florrida is still exporting milk.....it exported 325 loads last week. This typically when they seasonally start importing milk into Florida. Weather on the left coast is favorable for milk production, especially in Wash., and even Arizona is having more seasonal temps. favorable to milk production. BUT, DEMAND REMAINS strong, at least in the export department. And milk production is light in the NE according to Milk and Fluiid review. Demand for western dry whey remains strong, and that takes milk away from the vat.

 

Overall, I am slighty bullish. Just think feed cost are going to start taking it's toll on dairies REAL soon. Those that have to buy lots of alfalfa will most likely have to start shelling out the checks for that, or at the very least for putting up the haylage, and paying for getting the crop planted. Question some have to ask is......will corn go down before cornsilage harvest. $8/bu. and 200 bu/acre corn= $1600/acre for the value of the corn silage. But if corn goes dwon to $5/bu it is only $1000/acre.......big difference in COP for milk production in that situation. Barring any real hot weather, I look for a significant correction in the next couple of weeks. And a similar recovery in Nov., these are not times for the weak minded or weak stomached. Time to put the lead to the paper, and get some summer milk booked. Or at least get a put bought to protect the botto. 

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3 Replies
jrsiajdranch
Veteran Advisor

Re: Musings from the Milkhouse

Morning there friend.  Good thoughts. I think the folks who are purchasing the majority of the feed are gonna be screwed!  Now since this is for the most part the big guys we could actually see a bigger reduction in milk over time.  I am not holding my breath as they have proved to be far more resiliente than I ever thought they could be.

 

Yea Florida is gonna be an interesting one to watch. thos we actually shipped fewer loads out this year as compared to last year not by much but at least we didn't ship out more. That milk leaving is also having a hard time with logistics according to Dairy Market news. The heat is making the travel times much less.  ALso the SE dairy CO-OP said the big reason was that with less vacationers they are swamped by the milk therefore the seasonals change is more a function of demand than supply. Now that isn't a good thing but it is a perspective that I think needs to be given some weight. SO with that in mind if we get down around 100-150 loads laeaving that means there is some huge supply issues.

 

Well somebody would be shocked that we dpont always agree but we do make each other think which is better than shaking your head! LOL

 

Hey I also think that the summers poor quality and quantity hay crop is prolly the bigger factor going forwarsd.  THe price of corn will just cause less corn to be fed. But you can't feed less corn and not have good forages.  So the long term thing is gonna be the cost of hay. 

 

As to your point about puts I was wondering the same thing while I have been taking it easy trying to get feeling better.  Didn't make to many calls afraid that the call of nature would cut them short so I mostly just sat around and watched TV.  BUt my thought is with the way the markets have been behaveing with the out months coming up to nearbys shouldn't you buy a call and hope to sell it into the future? 

 

BUt in the nearbys isn't the question if you buy a put  for August at 18.50 for 69 cents than doesn't that mean the market has to drop to 17.81 for your put to be worth anything?  That is why I think buying calls gives you a chance to collect on a much smaller move.

 

Today , er yesterday , you could buy a call for aug at the money for 80 cents. tha means that august milk has to rally to 19.55 to break even. or go to 20 and you make 45 cents.  To make 45 cents to the downside you would have to have futures fall to 17.36 and I just don;t see that happenening.

 

I know it is risky but with  DEC 17.75 call @ 1.23 and a dec put at 1.15 for 17.5 which is the better position?

 

If we had all had our collective heads out of our rearends we would have bought milk last fall for these summer months and made a killing!  Goes to show prayer isn't the only answer.

 

Good thought keep em coming.  BTW why didn't you get that weather machine to drop a little more on ya? LOL HAve a good one today. I'll check back at non or so. Gotta go to Mason with the kids.  4 days till D-DAY.  Watch out on the roads!

See ya.

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rayjenkins
Veteran Advisor

Re: Musings from the Milkhouse

Anything to the investigation into Fonterra and global pricing??

 

How about a strangle with those put/call values you quoted.....sell both and you collect 2.38 and are not losing any money unless milk goes above 20.13 or below 15.15 ????

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semndairyguy
Veteran Contributor

Re: Musings from the Milkhouse

Funny how with both see the same tea leaves but are reading them slightly different.

Most fall rallies are preceded by Florida Importing milk. So if they get down to only shipping out a 100 loads, that will still be negative to the market.

Feed IS the issue both quality and quanity. Most guys first crop was better quanity wise than expected, but less than it should have been. Quality is ok, but not as candy-ish as some wanted. Lot of people jumping around on commodities, puttibg in and pulling out. Not sure that pays as cows like consistency. We have gained back the milk we lost in the heat.

I have some inquiries out on the Fonterra thing.

Btw, replying on a smartphone is a PITA! LOL

Personnally I'm not a big fan of the fence stragedy. I think the puts get to low to make them work. I'd rather FC the milk and buy a call on a dip to protect the upside. Greengold and I have discussed this and I believe he has employed it. Have not at this time yet. But have in the past.

Well better go be a underemployed, nonreal, can't compete cause we don't avg 100#/cow/day, dairy farmer. LMAO
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