Market News

Strong finish for dairy markets

A pretty strong finish to the month in the dairy markets.  Cash cheese barrels gained 3.5 cents, blocks added 1.5 cents and butter increased 3.25 cents on the Chicago Mercantile Exchange.  Class III futures responded with April up 7 cents, May increased 11 cents, the June contract added 16 cents and October was up 26 cents for the day.

For the month: cash cheese barrels increased 10.75 cents, blocks are 3.5 cents higher, butter gained 9 cents and nonfat dry milk lost 18 cents.  March Class III slipped 19 cents, April lost 22 cents and May declined 25 cents from March 1^st.

A day of mixed emotions for European dairy producers.  After 30 years, EU milk production quotas end at midnight.  Some welcome the opportunity to modernize, expand and better compete on the global market.  Others oppose the move fearing it will result in a rapid growth in milk production in a market already facing oversupply.

Under the quota system, producers were limited in the amount of milk they could produce facing stiff penalties for exceeding the quota.  There are reports that a number of dairy producers have been withholding milk from the market for the past few days waiting to move it once the quotas expire.  The Irish Independent says some farmers have been gearing-up production for April 1^st and have had to dump milk or feed extra calves to avoid penalties.  The report says; “Fleets of trucks will be standing in yards tonight ready to collect supplies after midnight.”  There are concerns about how processors will be able to handle the extra milk.

Some dairy producers are using their tractors to clog the streets of Brussels in protest to the end of the quotas.  The farmers are demonstrating in front of EU headquarters saying the change will bring about the demise of small farms in the Union.  They contend increased milk production will put further pressure on prices forcing small farms out of business.  In the end, there will be fewer, larger farms.

Those who favor an end to the quota system say it will make European producers more competitive with the U.S. and New Zealand on the global market.  Their argument has been that as global demand increases, the quotas have limited European production and with it the ability to supply that increased demand.  There is a surplus of production on the world market right now but many believe that is a temporary situation.  Another argument for dropping the quota is that there is a shortage of young farmers in Europe who want to operate the small dairies.

A number of European dairy processors have been expanding in anticipation of more milk coming.  Another change, Euronext will begin offering dairy derivatives including futures and options for skim milk powder, whey powder and butter on April 13^th.  As part of the introduction, the exchange will waive all trading fees through June 30^th.

The rest of the world is watching to see just how European producers will react.  Some predict rapid increases; 20 to 50 percent in production in Germany, Ireland, the Netherlands, Denmark and Poland by the year 2020.  Others question that number saying land prices and environmental regulations will hinder expansion