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Dairy market waiting for next “black swan” event

A market analyst says the dairy industry is waiting for its next “black swan” event.

INTL FCStone senior risk management consultant Kyle Schrad tells Brownfield dairy prices have fallen over the past two years because supply has eclipsed demand.

He says there are scenarios that could turn prices around.

“The question, as it kind of always is in dairy; when’s the next Chinese melamine scare?  Or when’s the next big government change that drives Chinese milk production down sharply?  What’s going to be that one off thing that kind of hits us and potentially changes this thing?”

Schrad says the transition from an El Nino to a La Nina and how that might impact feed grain prices is something to watch.

“If we see domestic grain prices move substantially higher this summer, you’re going to see some really negative margins for dairy producers in the United States.  And that could be kind of the ‘black swan’ event that would turn this market around and send us sharply higher.”

Without an outside market influence, Schrad says it might be awhile before the demand side of dairy catches up and prices start to recover.

INTL FCStone will be hosting a Food Industry Forum in July that will break down dairy market factors and reasons for the recent volatility.