After reaching record highs in 2004, milk has been in a steep downwards trend. Having just recently crossed below the $11 mark, class III milk futures are down 50% from their highs two years ago. With many farmers having increased their dairy cattle herd over the past few years in response to high prices, the industry is now suffering from an oversupply of this commodity. This has caused a correction unlike anything seen before in the industry.
Cattle caretakers all over the world are now struggling to survive. In New England, estimates are that these farmers are now losing 50 cents for every gallon of milk sold. In Massachusetts, the average dairy famer is losing over $4,000 every month. In the United Kingdom, 3 dairy famers are quitting the business everyday. After such spectacular profits a few years ago, the industry is now undergoing a popping of the milk bubble.
As more and more farmers quit the business, the future supply of the commodity is certain to decline. This could mean that a turnaround in the industry is right around the corner. Whether or not the bottom is already in, time will tell. Nevertheless, prices are only 2 cents above their lows over the past decade. While more consolidation is possible, The Commodity Investor is adding class III milk to its list of recommended commodities at the price of $11.10. Based on historical standards, the maximum risk for this investment is quite low, while the rewards over the next few years could witness prices shoot above $20 in just a few years time.
The Commodity Investor