... be bigger.â Hoard's Dairyman West, September 25, 2014. ... University of Minnesota-Twin. Cities. 317c Ruttan Hall.
Dairy Markets Situation and Outlook for 2015
Dr. Marin Bozic
National Agricultural Bankers Conference Omaha, NE, November 10, 2014
Dairy Outlook As It Used To Be
2
Class III Milk – What Happened in 2014? $25.00 $24.00 $23.00 $22.00 $21.00 $20.00 $19.00 $18.00 $17.00
Dec Jan Feb Mar Apr May Jun 13
Jul Aug Sep Oct Nov Dec
2014 Futures
USDA Class III Milk Prices 3
Class IV Milk – What Happened in 2014? $25.00 $24.00 $23.00 $22.00 $21.00 $20.00 $19.00 $18.00 $17.00
Dec Jan Feb Mar Apr May Jun 13
Jul Aug Sep Oct Nov Dec
2014 Futures
USDA Class III Milk Prices 4
2014 YOY Growth
Evidence A: Dairy Exports 90% 75% 60% 45% 30% 15% 0% -15%
Q1
-30%
Q2
Q3
-45% -60% -75%
Butter
Whey
Nonfat Milk Power
Cheese 5
Annual Growth in the U.S. Milk Production (Mil LBs) Annual Growth in the U.S. Milk Per Cow (Lbs)
Evidence B: U.S. Milk Production 650 550 450 350 250 150 50 -50
7,500
5,500
3,500
1,500
-500
-2,500
Dairy Herd Change, '000 Head
Evidence B: U.S. Milk Production 135 115 95 75 55 35 15 -5
US
Idaho 2007/08
Texas
California
2013/14 7
Evidence C: Dairy Products Stocks
'000 Lbs
U.S. Butter Stocks 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Jan
Feb
Mar 2012
Apr 2013
May
Jun
Jul
Aug
Sep
2014 8
Understanding the new MPP-Dairy Feed Ration 28.9 lbs of corn 110.3 lbs of corn silage 51% of the feed costs
16.33 lbs of soybean meal 26% of the feed costs
27.3 lbs of alfalfa hay 23% of the feed costs
MPP-Dairy Margin = U.S. All-Milk Price - 1.0728 x NASS Corn Price ($/bu) - 0.00735 x AMS Soybean Meal (Central IL) ($/ton) - 0.0137 x NASS Alfalfa Hay ($/ton) 9
New Benchmark for Dairy Profitability – MPP-Dairy Margin Sep-Oct ‘14: $15.86
May-Jun '09: $2.49
10
MPP-Dairy Margin Forecast for 2015
http://DairyMarkets.org/MPP/Tool
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MPP-Dairy Margin Forecast for 2015
http://DairyMarkets.org/MPP/Tool
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Upside and Downside Risks in 2015 • China: Will Dairy Imports Be Sustained? • Europe: Dairy Quota Removal vs Russia Imports Ban – which one will Dominate? • New Zealand: Slowdown in Dairy Conversions? • US: o California Drought o Delayed Production Response to 2014 Margins o Market-level effects of MPP-Dairy 13
Major Dairy Provisions of the Agricultural Act of 2014 REPEALED
NEW
Milk Income Loss Contract
Dairy Forward Pricing Program
Margin Protection Program for Dairy Producers
Dairy Product Price Support Program
Dairy Price Support Program (“dairy cliff”)
Dairy Product Donation Program
Dairy Export Incentive Program
Livestock Gross Margin for Dairy Cattle
Potential California Federal Order 14
Would MPP-Dairy Help Western Dairies?
• “The situation in California is the worst of both worlds: Its allmilk price is consistently lower than the national average, and its feed costs are consistently higher. As a result; the state's margin since 2007 has averaged $2.4 7 less than the national margin.” • “As national margins erode, Western margins will drop lower because they already are lower. Profits will disappear faster. Losses will happen sooner and they will be bigger.” Hoard’s Dairyman West, September 25, 2014.
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MPP-Dairy: Milk Price Basis (Region Minus US All-Milk) 2.00 1.50 1.00 0.50 0.00 -0.50 -1.00 -1.50 -2.00
2007
2008
2009
Upper Midwest
2010 Texas
2011 Idaho
2012
2013
California 16
MPP-Dairy: Feed Cost Basis (Region Minus MPP Feed) 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 -0.50 -1.00
2007
2008
2009
Upper Midwest
2010 Texas
2011 Idaho
2012
2013
California
Homegrown feed valued at market prices. Replacement heifers feed costs included. 17
MPP-Dairy: Milk Income over Feed Costs Margin Basis 3.00 2.00 1.00 0.00 -1.00 -2.00 -3.00 -4.00 -5.00 2007
2008
2009
Upper Midwest
2010 Texas
2011 Idaho
2012
2013
California 18
What kind of risk protection do I need?
Loss Tolerance Required Farm-level IOFC Margin MPP-Dairy Effectiveness
Other Operating Costs IOFC Basis
19
Other Operating Costs (Excluding Feed, Herd Replacement and Depreciation) $9.00 $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 2007
2008
2009
Upper Midwest
2010 Texas
2011 Idaho
2012
2013
California 20
2009 Net Farm Income Per Cwt
How much would MPP-Dairy help in a year like 2009? $0.00 -$1.00 -$2.00 -$3.00 -$4.00 -$5.00
71%
55%
44%
53%
Upper Midwest
Texas
Idaho
California
-$6.00 Full Loss
Loss after MPP 21
MPP-Dairy: Time to Make a Decision
• MPP-Dairy Registration for 2015 ends on December 5, 2014. • Talk with your clients, help them make an informed decision.
22
Speculative Sentiment in Dairy Futures and Options
Speculative Net Long Position
20000 15000 10000 5000 0 -5000 -10000 -15000 -20000
Class III Milk
Cheese 23
Milk Pricing: From Cheese to Milk and Back
Cheese
Protein Value
Butter
Butterfat Value
Dry Whey
Other Solids Value
Class III Skim Milk Class III Milk
24
Acknowledgements
25
Dairy Situation and Outlook for 2015 National Agricultural Bankers Conference Omaha, NE November 11, 2014 Dr. Marin Bozic
[email protected] Department of Applied Economics University of Minnesota-Twin Cities 317c Ruttan Hall 1994 Buford Avenue St Paul, MN 55108 Photo Credits: Mara at Blue Diamond Dairy © Sadie Frericks, 2010
