Milk Turns Sour

US milk futures contracts have collapsed to a six-year low as dairy farmers boost production amidst slowing consumption. Slowing Chinese demand, Russian bans on US milk, and Americans' preference for alternative drinks have left dairy farmers feeling sour.

In addition to suffering through multi-year low prices for their product, dairy farmers are now facing rising feed costs. Since early April, milk futures prices have dropped 13% while corn and soybean prices have jumped by 11% and 17%, 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 that 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.

Rate Hike Plans Cause Turmoil

The US 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 had barely considered the possibility just a few weeks ago.

Strong housing, manufacturing, and retail sales data have all emboldened the Fed, and continued economic strength would allow them to raise their benchmark rate another 0.25% in the coming months.

However, they have 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 selloff in the futures markets for precious metals, stocks, and bonds, as higher interest rates make those investments less appealing.

Meanwhile, the US dollar gained in value as foreign investors would prefer to hold higher-yielding US cash instead of euros, Japanese yen, or other currencies with near-zero interest rates.

As of Friday, the US Dollar futures contract was trading at 95.40, at a two-month high.