Dairy Markets. Situation and Outlook for 2015. Dr. Marin Bozic. MNMilk Dairy Expo. St Cloud, MN, December 3, 2014 ...
Dairy Markets Situation and Outlook for 2015 Dr. Marin Bozic
MNMilk Dairy Expo St Cloud, MN, December 3, 2014
2014 – A Record-Shattering Year Sep-Oct ‘14: $15.51
May-Jun '09: $2.49
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What happened in 2014? What will 2015 Bring?
DEMAND Loving Milkfat Branded Milk Exports
SUPPLY EU Milk Quotas El Nino MPP-Dairy
3
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 4
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 5
2014 YOY Growth
U.S. Dairy Exports in 2014 90% 75% 60% 45% 30% 15% 0% -15% -30% -45% -60% -75%
Q1
Butter Nonfat Milk Power
Q2
Q3
Whey Cheese 6
Growth of U.S. Exports / US Milk Production Growth
Year
Total Solids
Milkfat
Nonfat Solids
2003-2013
64%
27%
80%
2007-2013
73%
36%
90%
2009-2013
94%
45%
119%
2014 YTD Sep
41%
82%
32%
U.S. exports ‘only’ cca 15% of total milk solids, but exports have been absorbing most of the growth of U.S. milk production over the past decade. 7
At current world vs U.S. prices, U.S. exports are not competitive
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At current world vs U.S. prices, U.S. exports are not competitive
9
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 10
Domestic Commercial Disappearance Q1-Q3 Year-on-Year Growth (Million Lbs) Product (Mil lbs)
September Stocks (Days of Consumption)
2014 Q1-Q3
2014
10yr avg
2013
10yr avg
Butter
1,242
23
33
30
41
American Cheese
3,174
27
40
50
52
Other Cheese
4,829
112
89
19
19
746
-1
-14
26
25
NFDM+SMP
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Annual Growth in the U.S. Milk Production (Mil LBs) Annual Growth in the U.S. Milk Per Cow (Lbs)
U.S. Milk Production Growth Very Robust 650 550 450 350 250 150 50 -50
7,500
5,500
3,500
1,500
-500
-2,500
Dairy Herd Change, '000 Head
U.S. Dairy Herd Not Growing as Fast as in 2007/8 135 115 95 75 55 35
15 -5
US
Idaho 2007/08
Texas
California
2013/14 13
Drought in the West
Butter is Back: 1984 vs. 2014
15
Milkfat Popularity Is Rising
Source: DMI Monthly Sales and Insights Report, October 2014
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Fluid Milk De-commoditization
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Metric Tons
Demand: China – Milk Powder Imports 175,000 150,000 125,000 100,000 75,000 50,000 25,000
0 Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec 2012 Source: Highground Dairy, based on GTIS/China Customs
2013
2014 18
El Nino Coming?
Is the strong dollar hurting US dairy exports?
International dairy commodities are quoted in U.S. dollars. Stronger dollar curbs import demand from importing countries, and encourages other exporters to offer more at the world market if their domestic price was making their domestic markets more lucrative before dollar appreciation. In the current situation, with US prices already above EU and Oceania, I think the first order effect of stronger dollar is the downward pressure on world dairy commodity prices.
EU Quotas?
USDEC (2014) EU – The Impact of the Removal of Milk Quota in 2015: • EU processors have started to invest in post-quota processing capacity and will continue to do so. Investments are in milk powders, whey and lactose, but very few in cheese and butter. USDEC predicts the EU quota removal will instigate: • Whole Milk Powder - oversupply • Skim Milk Powder – markets close to balance • Cheese – markets undersupplied • Butter – strong potential of oversupply • Whey Powders – likely continued undersupply
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 22
Private Forecasters are Bearish $19.00 $18.00 $17.00
$16.00 $15.00 $14.00 $13.00 $12.00 $11.00 $10.00
Private
Class III Milk Futures, 12/3/2014 23
Speculative Sentiment in Dairy Futures and Options
Speculative Net Long Position
20000 15000 10000 5000 0 -5000 -10000
-15000 -20000
Class III Milk
Cheese 24
MPP-Dairy Margin Forecast for 2015
http://DairyMarkets.org/MPP/Tool 25
MPP-Dairy Margin Forecast for 2015 as of August 25, 2014
http://DairyMarkets.org/MPP/Tool 26
MPP-Dairy Margin Forecast for 2015 as of December 2, 2014
http://DairyMarkets.org/MPP/Tool 27
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 28
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 29
What kind of risk protection do I need?
Loss Tolerance Required Farm-level IOFC Margin MPP-Dairy Effectiveness
Other Operating Costs IOFC Basis
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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 31
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 32
MPP-Dairy: Time to Make a Decision
• MPP-Dairy Registration for 2015 ends on December 5, 2014. • As of Thanksgiving, about 8,000 (18%) farms have enrolled, 1/3 buying above $4.00.
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Mea Culpa, Mea Culpa, Mea Maxima Culpa…
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Let’s Try Again… What will be Minnesota 2015 Milk Price? Year
Mailbox Milk Price
2008
18.68
2009
13.03
2010
15.75
2011
19.99
2012
19.35
2013
19.93
2014*
24.03
2015*
17.50
My forecast for 2015 Minnesota mailbox milk price is $17.50. With 80% confidence I predict it will be between $15.25 and $19.50.
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Acknowledgements
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Dairy Situation and Outlook for 2015 MN Milk Dairy Expo St Cloud, MN December 2, 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
