By Matt Mattke
Q: At $9.00/cwt. milk, what are the potential price risks and opportunities for the next twelve months?
A: The one remaining risk for 2009 is the possibility that all contract months could expire at an equal or lesser price level than where the January contract expired. This would mean that prices in the second half of 2009 could slowly creep lower, thus removing the almost $3.00 premium that exists between the January contract price and the latter half contract prices. Such a price event has not occurred since 2000, but it has occurred before, so it could occur again. Currently the January contract is at $10.65, so coming down to this price level is the major risk for June to December contract months (February to May prices are already at that level). The major catalyst for this to occur would be for the cheese market to trade sideways for a prolonged period at the current $1.05 to $1.10 price range.
While the milk market is at least 12 to 14 months away from the next bull market, some pricing opportunities could arise in the meantime. For March through June contract months, a bounce of $1.00 to $2.00/cwt is realistic, which could propel prices to retest the $11.50 to $12.50 price level in these months. For July through December contract months, a bounce to $15.00 to $16.00 is a realistic possibility. The $16.00 price level is the absolute most bullish possibility we could see for July to December prices at this time. If grain prices remain at historically high levels, a drastic pickup in slaughter numbers in the first half of 2009 could be one catalyst that helps to bring the most bullish price scenario to fruition.
Be sure to stay defensive on any bounces. Another bull market like 2007 and 2008 is years away, and in the meantime if any price bounces do occur, there will be pressure to return prices to their previous low levels.
• Matt Mattke, Market360® adviser at Stewart-Peterson, can be reached via e-mail:firstname.lastname@example.org, phone: 800-334-9779 or visit