We just so happened to stumble upon the table below courtesy of the Food and Agriculture Organization of the United Nations showing a nice breakdown of the dollar value of the top 20 agriculture “crops” produced around the world in 2012 (the last year of data). Who knew milk is the most valuable “crop” produced in the world, or that the Agriculture bellwethers in the futures space – Wheat and Soybeans – are each less than half the value of the meats (cattle, pig, and chicken). Or that tomatoes outsell potatoes.
Rank | Commodity | Billions | Production (MT) |
|---|---|---|---|
| 1 | Milk, whole fresh cow | $187.28 | 625,753,801 |
| 2 | Rice, paddy | $185.58 | 719,738,273 |
| 3 | Meat indigenous, cattle | $169.48 | 62,737,255 |
| 4 | Meat indigenous, pig | $166.80 | 108,506,790 |
| 5 | Meat indigenous, chicken | $132.09 | 92,730,419 |
| 6 | Wheat | $79.29 | 670,875,110 |
| 7 | Soybeans | $60.69 | 241,841,416 |
| 8 | Tomatoes | $59.11 | 161,793,834 |
| 9 | Sugar cane | $57.86 | 1,832,541,194 |
| 10 | Eggs, hen, in shell | $54.99 | 66,372,549 |
| 11 | Maize | $53.60 | 872,066,770 |
| 12 | Potatoes | $48.77 | 364,808,768 |
| 13 | Vegetables, fresh nes | $46.14 | 269,852,343 |
| 14 | Grapes | $38.34 | 67,067,129 |
| 15 | Milk, whole fresh buffalo | $38.30 | 97,417,135 |
| 16 | Cotton lint | $37.10 | 25,955,096 |
| 17 | Apples | $31.88 | 76,378,738 |
| 18 | Bananas | $28.21 | 101,992,743 |
| 19 | Cassava | $25.69 | 262,585,741 |
| 20 | Mangoes, mangosteens, guavas | $25.25 | 42,139,837 |
But we kept coming back to Milk being worth the most “moo-la”, that was utterly interesting (ok, we’re done with the cow puns), and we went searching for some more data, finding an update on Milk production from the USDA:
“Milk production in the 23 major States during March totaled 16.7 billion pounds, up 1.1 percent from March 2013. Production per cow in the 23 major States averaged 1,959 pounds for March. The number of milk cows on farms in the 23 major States for March was 8.51 million head, 1,000 head more than February 2014. The average number of milk cows in the United States during the quarter was 9.22 million head.
Chart Courtesy: USDA
Chart Courtesy: A single cow produces almost 2,000 pounds of milk by itself… Good to know, but hard to believe until we found out robots were involved via the New York Times.
“Something strange is happening at farms in upstate New York. The cows are milking themselves.
Desperate for reliable labor and buoyed by soaring prices, dairy operations across the state are charging into a brave new world of udder care: robotic milkers, which feed and milk cow after cow without the help of a single farmhand.
Robots allow the cows to set their own hours, lining up for automated milking five or six times a day — turning the predawn and late-afternoon sessions around which dairy farmers long built their lives into a thing of the past.
With transponders around their necks, the cows get individualized service. Lasers scan and map their underbellies, and a computer charts each animal’s “milking speed,” a critical factor in a 24-hour-a-day operation.
The robots also monitor the amount and quality of milk produced, the frequency of visits to the machine, how much each cow has eaten, and even the number of steps each cow has taken per day, which can indicate when she is in heat.”
The future is here!
So the milk futures market given milk-bots and $180 Billion in global production each year must be huge, right? Not even close… as it turns out; the Class III Milk Futures had a Volume of about 2900 across futures and options yesterday, and an Open Interest of about 107,000 contracts. Compare that with Corn at 500,000 contracts yesterday and 2.7 million in open interest, and you can see we’re talking about an illiquid liquid.
So why isn’t there more Milk hedging and the speculators to take the other side?
Well, there is at least one professional speculator in the Milk space, Dairy focused CTA Schindler Capital Management, which just so happens to be up 28% on the year {past performance is not necessarily indicative of future results}. The problem is the CTA isn’t open for new customers because of capacity constraints, based on the fact that the market is just too illiquid.
And why isn’t there more hedging of that $180 Billion in exposure? Well – for one, a big component of the milk price is the price of the feed they give the cows, so a farmer could hedge the feed price instead of the milk price, using Corn or Soybean futures. Further, it doesn’t lend itself to a perfect commodities futures contract. A good futures commodity contract is perfectly transferrable – (a bushel of Corn is a bushel of Corn), cheaply transportable (a train car full of Corn), not easily perishable (Corn can sit in a silo for quite some time), and with a delivery hub close to production. Milk isn’t cheaply transported and is highly perishable, requiring refrigerated trucks and so forth. It’s also in nearly every corner of the world – making the delivery of a futures contract a dicey thing. What if it spoils en route? But the bigger issue is it is produced in almost every corner of the world and that production is highly fragmented (got a cow, you’re in the milk business), leading to less big corporate entities who need to hedge millions or tens of millions of dollars of productions. There’s also this little PR problem to overcome: “Dairy Farmers of America agrees $46m CME price fixing settlement”
So don’t hold your breath waiting for the Milk futures market to explode – we’ll probably see Chicken futures before then.