U.S. milk futures contracts have drained to a six-year low as dairy farmers boost production amid slowing consumption. [Photo illustration]
Milk production
U.S. milk futures contracts have collapsed to a six-year low as dairy farmers boost production amid slowing consumption. Slowing Chinese demand, Russian bans on U.S. milk, and Americans’ preference for alternative drinks have left dairy farmers feeling sour.
In addition to suffering through multiyear low prices for their product, dairy farmers are facing rising feed costs. Since early April, milk futures prices have dropped 13 percent while corn and soybean prices have jumped by 11 percent and 17 percent, respectively.
Despite the negative outlook, dairy production has been rising this year and is projected to reach a record 212.4 billion pounds of milk. Many fear the high production levels could lead to even lower prices in the coming months.
For consumers, the milk glut is translating to low prices at the grocery store, which are averaging $3.16 per gallon.
Meanwhile, the excess supply is being soaked up by cheese producers, who now are sitting on the largest cheese hoard since the 1980s.
Fed’s interest rate hike plans in June cause turmoil
The U.S. Federal Reserve announced this week that it was considering raising interest rates at its next meeting in June. This news came as a shock to financial markets that barely considered the possibility just a few weeks ago.
Strong housing, manufacturing and retail sales data all have emboldened the Fed, and continued economic strength would allow the group to raise its benchmark rate another 0.25 percent in the coming months.
However, the Fed has not committed to this change, especially since the global economy continues to be unsteady and could be derailed if the United Kingdom votes to leave the European Union on June 23.
The Fed’s announcement caused a sharp sell-off in the futures markets for precious metals, stocks, and bonds, as higher interest rates make those investments less appealing.
Meanwhile, the U.S. dollar gained in value as foreign investors would prefer to hold higher-yielding U.S. cash instead of euros, Japanese yen, or other currencies with near-zero interest rates.
As of Friday, the U.S. dollar futures contract was trading at 95.40, at a two-month high.
Source: The Oklahoman
