Dairy Market Outlook for Kenny Burdine University of Kentucky Agricultural Economics

Transcription

1 Dairy Market Outlook for 2016 Kenny Burdine University of Kentucky Agricultural Economics

2 Outline for Discussion Review of Current Market Conditions Production and market drivers Trade and trade expectations Planning prices for 2016 Updates on basis and milk price differentials

3 Overview of Market Spring to fall 2014 one for the books Milk prices into upper $20 s, feed prices moving down, strong export levels, first round of MPP- Dairy Q to present - production expands, exports pressured by prices, stronger $, et al. Prices down about $7 per cwt in 2015

4 MILK CONSUMPTION PER CAPITA Pounds Data Source: USDA-ERS Livestock Marketing Information Center

5 U.S. PER CAPITA CONSUMPTION OF SELECT DAIRY PRODUCTS Butter Yogurt Cheese Data Source: USDA-ERS Livestock Marketing Information Center

6 Mil. Head Data Source: USDA-NASS Livestock Marketing Information Center MILK PRODUCTION vs. MILK COW INVENTORY AVERAGE ANNUAL INVENTORY, U.S = 9.3 Million Head +1.1 Percent Inventory Production Bil. Pounds

7 US All Milk vs. MPP-Dairy Ration (2002 to present)

8 MPP-Dairy Margin (2002 to present)

9 Trade and Trade Drama

10 2015 Dairy Exports Volume down about 10%, values down about 30% Stronger US dollar Weaker global economies Russian ban on EU products China has backed way off Whey and powder

11 Bil. $ 6.0 US DAIRY INDUSTRY EXPORT VALUES Annual Live Cattle Milk,Crm&Pwdr Whey Nat Mlk Butter Cheese Casein Data Source: USDA-FAS, Compiled & Analysis by LMIC Livestock Marketing Information Center

12 What is the TPP? Trans-Pacific Partnership In negotiations several years Passed but still has to be ratified Broad sweeping trade negotiation Freer trade, labor and environmental laws, intellectual property, dispute settlement US, Canada, Mexico, Japan, Australia, New Zealand, Malaysia, Peru, Brunei, Chile, Singapore, Vietnam No China ERS estimated potential gains for agriculture Dairy a small piece of the big picture, but

13 Dairy and the TPP Canada production controls, high tariffs protect domestic dairies United States likely to benefit from greater access already much dairy to CA and Japan US vs CA: maybe some spillover from NAFTA Australia / Japan existing trade agreement likely reducing potential US exports New Zealand- 95% of production exported, huge share of NFDM

14 US All Milk Price (January 2008 to December 2015)

15 $ Per Pound JAN APR JUL OCT Data Source: USDA-NASS Livestock Marketing Information Center CHEDDAR CHEESE PRICES 500 Pound Block, US, Weekly Avg

16 $ Per Pound JAN APR JUL OCT Data Source: USDA-NASS Livestock Marketing Information Center BUTTER PRICES US, Weekly Avg

17 $ Per Pound JAN APR JUL OCT Data Source: USDA-NASS Livestock Marketing Information Center DRY WHEY PRICES US, Weekly Avg

18 $ Per Pound JAN APR JUL OCT Data Source: USDA-NASS Livestock Marketing Information Center NONFAT DRY MILK PRICES US, Weekly Avg

19 Estimated Quarterly Milk Production Slowing, but still growing

20 Estimated Quarterly Milk Production

21 2016 in Summary Milk production likely to grow 1-1.5% Primarily productivity gain Corn futures suggest small, but steady increase to harvest USDA is forecasting lower exports Some exports improved in Q4, dairy did not Demand and trade likely to determine price path for 2016

22 Current Class III CME Milk Futures

23 Planning Prices for st quarter - $ nd quarter - $ rd quarter - $ th quarter - $18-20 (KY Mailbox) Use these as a place to start your expectations

24 Updates on KY Basis and Price Differentials

25 Appalachian Order minus Class III

26 Southeast Order minus Class III

27 Milk Classes Class I fluid milk Class II soft products Yogurt, ice cream, cottage cheese Class III hard cheeses, whey Class IV butter, dry products

28 How are minimum prices set? 1. Start with values of dairy product, ie: wholesale cheese price 2. Yield factor - how much cheese should we get from a cwt of milk 3. Make allowance reasonable processing cost to make the cheese 4. This is done for all products from that class 5. Minimum price is established

29 More pricing details Formulas are set such that Class I and II prices exceed class III and IV prices Typically I-IV in order of price Class III cheese, dry whey, BF Class IV butter, non-fat dry, BF Class II Advanced class IV + 70 cents Class I Higher of advanced class III or class IV plus class I differential Note: Advanced prices are released 2 week into prior month*

30 Federal Milk Marketing Order Class I Pricing Structure

31 MPP-Dairy vs. LGM Dairy Decision tool available from FSA website: Examine both programs separately Margins are not directly comparable

32 Milk Price Differences Margins offered can t be compared directly Not apples to apples MPP-Dairy: US All Milk LGM-Dairy: Class III Milk Futures US All Milk Price will exceed class III futures Includes class I and II milk : US All Milk exceed class III by $1.57 per cwt

33 US All Milk minus Class III

34 Feed Cost Differences LGM-Diary corn and SBM futures Default 28 lbs of corn Default 4 lbs of SBM These can be changed!!!!! MPP-Dairy National corn, SBM, and Alfalfa prices 60.1 lbs of corn 14.7 lbs of SBM 27.4 lbs of Alfalfa hay Adjust for price differences, match feed quantities, subtract Alfalfa component The change is what matters

35 Nature of the Programs LGM-Dairy futures based Available insurable margins evolved with market Good times = good opportunities MPP-Dairy a bit more of a throwback Countercyclical margins and premiums fixed through 2018 LGM-Dairy attractive in profitable times MPP-Dairy attractive in challenging times

36 Kenny s Last 2 Things get worse before they get better Prices likely to improve in 2 nd half of year I expect $2-$3 of improvement MPP-Dairy and LGM-Dairy are new safety net Margin insurance oriented Less worried about feed? Use lower end of LGM feed quantity range Go straight to milk board

37 Contact Information Kenny Burdine University of Kentucky Agricultural Economics (859)