Dairy Outlook. October By Jim Dunn Professor of Agricultural Economics, Penn State University. Market Psychology

Transcription

1 Dairy Outlook October 2015 By Jim Dunn Professor of Agricultural Economics, Penn State University Market Psychology The world s financial markets were volatile again, last month but really d very little. The underlying issues of a slowing Chinese economy, massive migration to Europe from the Middle East, and unpredictable Russian behavior remain. The corn and soybean crops are good, although not as big as last year. Of course, the strong dollar is undermining export opportunities for most agricultural products, depressing U.S. prices. The excellent crops elsewhere will limit export opportunities for corn and beans further. The price of butter has risen another 3.3% in the last month. It is not apparent why butter is so strong, although the thinness of the butter futures market probably makes it vulnerable to manipulation. A total of 85 contracts traded yesterday (October 5) compared to 152,000 CBOT corn contracts. While the dairy futures markets are more transparent that the old National Cheese Ex, this miniscule volume is not a convincing indicator of the state of the nation s dairy markets. Skim milk powder has risen 16% in the last month, which is peculiar given the world milk supply versus demand. Cheese has fallen 2.8% in the past month, while dry whey continues its skid and is down by 18% since last month. Dairy exports fell in July, the third consecutive month of reduced exports. The Australian dollar is up 1.9%, the New Zealand dollar up by 2.7%, and the Euro by 0.6%. These higher currency values make U.S. dairy exports slightly more competitive. Nevertheless, the export picture overall is not optimistic, with China holding huge inventories in a falling economy, while European production is higher and U.S. milk production is up (see below). Table 1 lists some past and estimated future milk prices. I estimate the Pennsylvania September all-milk price to be $18.73/cwt, up $1.13 from August 1

2 and the October price to be $ The dairy futures market prices show stable prices for Class III for the rest of 2015 and the first half of 2016, with prices averaging just less than $15.88/cwt. The Class IV futures prices average about $0.19/cwt more that Class III at $16.07/cwt., reflecting the strength in the butter market. The September Class IV price was up $2.18/cwt. from August at $15.08/cwt. My forecast for the average Pennsylvania all-milk price for the next nine months is $19.20/cwt., up considerably from recent months. Corn and Soybean Markets Corn and soybean markets have fallen somewhat because current forecasts for the 2105 crops are good. The earlier wet weather in the Corn Belt was much ado about nothing, since more typical weather followed and the crops recovered well. Since cold weather in the Midwest is late this year, the crops continue to mature. Income over Feed Costs (IOFC) Penn State s measure of income over feed costs rose by 6.2% in September, as milk prices rose by more than feed prices, which rose by 4.9%. Figure 1 shows how these values compare to recent years. September s feed cost is 23 /cow/day more than in August. September s value for IOFC of $7.28/cow/day is the highest in 2015, although well below any 2014 value. Income over feed cost reflects daily gross milk income less feed costs for an average cow producing 65 pounds of milk per day. Table 2 and Figure 1 showing the monthly data follow. The allocation of the revenue per hundred pounds of milk (milk margin) is shown in Table 3. The milk margin is the estimated amount of the Pennsylvania all milk price that remains after feed costs per hundredweight of milk production are paid. Like income over feed cost, this measure shows that the September PA milk margin was 6.2% higher than in August. Production The latest milk production report showed August milk production up 0.9% from a year earlier, but down from last month, as is typical for late summer (Figure 2). This increase in milk production is minimal. The Midwest, in particular, is 2

3 showing substantial increases in milk production, especially South Dakota, Minnesota, Michigan and Iowa, while California continues to shrink production, down 3.4%. The monthly cow numbers are shown in Figure 3. The August cow numbers rose by 0.58%, the same as July. Table 1. Prices and Futures Prices for 2014 and 2015 (Based on futures prices of October 2, 2015) PA All PA All 2015 Class III Class IV 2016 Class III Class IV $/cwt $/cwt $/cwt $/cwt $/cwt $/cwt Jan $16.18 $13.23 $19.20 Jan $15.72 $15.50 $18.86 Feb $15.46 $13.82 $18.30 Feb $15.77 $15.77 $19.00 Mar $15.56 $13.80 $17.70 Mar $15.88 $15.97 $19.15 Apr $15.81 $13.51 $17.60 Apr $16.01 $16.16 $19.30 May $16.19 $13.91 $17.80 May $16.15 $16.25 $19.41 Jun $16.33 $13.15 $18.10 Jun $16.35 $16.36 $19.57 Jul $16.33 $13.15 $17.60 Jul Aug $16.27 $12.90 $17.60 Aug Sep $15.82 $15.08 $18.73 Sep Oct $15.69 $16.90 $19.45 Oct Nov $15.63 $16.21 $19.12 Nov Dec $15.69 $15.50 $18.84 Dec Annual $15.91 $14.26 $18.34 Annual $15.98 $16.00 $19.21 Annual -$ $ $ 7.31 Annual $ 0.07 $ 1.74 $ 0.88 % -28.8% -35.4% -28.5% % 0.4% 12.2% 4.8% Table 2: PA Income over Feed Costs Feed Income All Cost per over feed Price 65 lbs. cost Month Jan-14 $24.90 $4.90 $11.29 Feb-14 $25.90 $5.00 $11.84 Mar-14 $26.70 $5.15 $12.20 Apr-14 $26.80 $5.62 $11.80 May-14 $26.20 $5.60 $

4 Jun-14 $25.10 $5.34 $10.97 Jul-14 $25.40 $4.75 $11.76 Aug-14 $26.30 $4.54 $12.56 Sep-14 $27.40 $4.80 $13.01 Oct-14 $26.10 $4.84 $12.13 Nov-14 $24.30 $4.91 $10.89 Dec-14 $22.60 $5.14 $9.55 Jan-15 $19.20 $5.24 $7.24 Feb-15 $18.30 $5.12 $6.78 Mar-15 $17.70 $5.17 $6.34 Apr-15 $17.60 $5.15 $6.29 May-15 $17.80 $4.90 $6.67 Jun $5.10 $6.67 Jul-15 $17.60 $5.14 $6.30 Aug-15 $17.60 $4.67 $6.77 Sep-15 $18.73 $4.90 $7.28 Table 3: PA Margin All milk price per cwt. Feed cost per cwt. margin per cwt. Jan-14 $24.90 $7.53 $17.37 Feb-14 $25.90 $7.68 $18.22 Mar-14 $26.70 $7.93 $18.77 Apr-14 $26.80 $8.65 $18.15 May-14 $26.20 $8.62 $17.58 Jun-14 $25.10 $8.22 $16.88 Jul-14 $25.40 $7.31 $18.09 Aug-14 $26.30 $6.98 $19.32 Sep-14 $27.40 $7.38 $20.02 Oct-14 $26.10 $7.44 $18.66 Nov-14 $24.30 $7.55 $16.75 Dec-14 $22.60 $8.06 $13.54 Jan-15 $19.20 $8.20 $11.00 Feb-15 $18.30 $7.88 $10.42 Mar-15 $17.70 $8.23 $9.47 Apr-15 $17.60 $7.93 $9.67 May-15 $17.80 $7.53 $10.27 Jun-15 $18.10 $7.84 $10.26 Jul-15 $17.60 $7.90 $9.70 Aug-15 $17.60 $7.18 $10.42 Sep-15 $18.73 $7.54 $

5 mil. lbs. $/cow/day Figure 1: PA Dairy Income over feed cost PA Dairy Income over Feed Cost yr avg 2 0 Jan Mar May July Sept Nov Figure 2: Production 18,000 17,500 Monthly Production 30 Day months ,000 16,500 16,000 15,500 Jan Mar May Jul Sep Nov Source:USDA 5

6 1000 head Figure 3: Dairy Cows 9,500 Number of Dairy Cows 9, ,500 Jan Mar May Jul Sep Nov Source:USDA 6