Analyzing dairy price charts and macroeconomic indicators: What kind of rebound do they suggest?

The Milk Check

You don’t need technical analysis to tell you that dairy prices are low right now. But stocks are still high, which suggests demand is weak. The questions are: What gives? And when? In this episode of The Milk Check, we talk through the feeling that our current bearishness points to a strong price rebound later in 2022 or early 2023. But not before Trading Strategy Director Jacob Menge takes us through technical charts on dairy products and macroeconomic indicators like copper and the dollar index. In the end, Jake suggests that a “max pain” moment would be necessary to kick off a violent upward price swing, and the team talks through what “max pain” might look like for different products. Jake: I'm going to start just with one thing. For those of you that were on the call last Friday with Alan, that ITR economics presentation, we actually had talked about this exact graph, the consumer loans and how it's a pretty eye popping number. He basically said it's nothing. It's really irrelevant. It's more or less on trend, and I agree completely. That's what we had been saying for months now, that this is showing up in a lot of newspapers, ignore it. The one thing I do have to add that I've actually learned in the past couple months, just talking around, that there is something to pay attention to on the consumer loan side, that is just not in this graph at all, and I had no idea about, frankly. It is buy now, pay later. Buy now, pay later was a 2 billion market in 2019. Anybody want to guess what it was last year? Any brave soul going to stick a number out? Joe: 5 billion. Don: 50. T3: 30. 30 billion, isn't it...? Jake: Ted's closest. Ted's closest. It's like 25. Okay, so we went about 10 x on the buy now pay later market, and it's still going up. And here's the rub. Of all buy now pay later users, about 10% have a credit card, the other 90% don't. And that tells you they probably have such poor credit, they can't even access the formal credit lending market with protections on it. And so, this is the exact kind of thing that preceded 08, where they basically had not enough checks and balances on a certain credit lending market, and eventually, it got overworked. And you know the rest of the story. So that's the kind of thing to pay attention to. There are things in the background that are kind of sketchy. There's a million apps that you can do buy now pay later on literally anything now. So it's kind of interesting. Now, it's 25 billion. You look at total revolving credit here, which is 900 to a trillion. We're not talking a huge percent, just call it two to 3%. Okay? Not huge, but still, it could be a domino, that starts some ugliness. Because the valuation of these buy now pay later companies is massive. The regulations around it are basically nothing. It does not show up on credit reports. So literally, you could have $2,000 a month in buy now pay later and go apply for a home loan or go apply for a credit card, and everyone pulling your credit report has no idea that you have these other bills outstanding. So that's the kind of thing that, even though officially credit cards don't look risky right now, how much else is tied up here? This is not the big one or anything to me, but it's just something that I thought was kind of interesting and kind of indicative of the economy as a whole, that people are starting to really ramp up use of products like that. Over to the fun stuff here. Going to start with cheese. We talked about this. We haven't done one of these charting meetings in a while, but we talked about this buck 93 level, which I think, in Class III, was... What was it? Like 1980? We were right on that line, and that has been a sticky, sticky support or resistance line for a long time. And we cruised right through it. There's a little bit of hesitation, but we are firmly below that now, and there's just not a ton of support anywhere up until like a buck 80, I would say.