U.S. milk futures are nearing a nine-month high, with prices approaching 17 cents per pound.
For U.S. dairy farmers, low-cost corn and soybeans, along with high-value milk, present a golden opportunity, but trouble may be lurking around the corner.
Global dairy prices have fallen to an eight-month low, which could ultimately drain U.S. prices lower as low-cost dairy from foreign markets undercut U.S. products.
The world’s largest dairy exporter is the island nation of New Zealand, which accounts for almost 20% of global sales. New Zealand has expanded its production in recent years, especially to meet rising demand from China, where consumer demands have shifted toward consuming more dairy in recent years.
U.S. dairy farmers would love to win more Chinese and other foreign business, as one fifth of all U.S. farm income is derived from foreign trade, a figure that has been rising in recent years.
Buyers want soybeans
As U.S. farmers are finishing the soybean harvest last week, they were greeted with rising soybean prices, which neared $10 per bushel. Prices gained on hopes for more demand from China’s pork producers, who need soybeans to feed their increasing hog herds. Livestock demand in the US is stronger as well, as U.S. hog and cattle numbers are near record levels.
Prices are also gaining as concerns mount about dry weather in Argentina, where farmers are planting their crop. Argentina is one of the world’s largest soybean exporters, but bad weather there could hurt their upcoming crop, creating more demand for U.S. beans.
U.S. dollar tumbles
The U.S. dollar dropped hard last week, falling to the lowest level in over a month. The greenback lost its charisma after recent announcements from the Federal Reserve indicated that inflation levels are generally low, which could keep stimulus measures and low interest rates around for longer.
Currency investors prefer higher interest rates and dumped the buck in response. As the U.S. dollar dropped, precious metals rose, with gold gaining $10 per ounce on Wednesday. For U.S. consumers, a lower dollar means more expensive foreign goods, while U.S. exporters generally see more foreign demand for their goods.