Dairy Markets Situation and Outlook for 2015

3 downloads 173 Views 3MB Size Report
... be bigger.” 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

11

MPP-Dairy Margin Forecast for 2015

http://DairyMarkets.org/MPP/Tool

12

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Major Dairy Provisions of the Agricultural Act of 2014 REPEALED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.

15

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