Summary of Current Dairy Situtation Conference Call with Bob Wellington, Agrimark Senior Economist

Via Alan Curler…

The following is summary of a conference call with Bob Wellington, Senior economist with Agrimark, on Sept. 6, 2012 at 10:AM. These are notes taken by Bob Parsons, UVM Extension.

Current dairy situation: We are seeing the following conditions….Record low milk:feed ratio, $8 corn, $530 Soymeal, $17 soybeans, Drought in midwest, tight dairy economic conditions, rising milk prices but continuing increase in milk production….What does all this mean for milk prices in the coming months?

Bob Wellington:  Currently we are seeing US production leveling off, with some regions reporting less milk production than that reported by USDA. Michigan and
Wisconsin up but other states like California and New Mexico down. Vermont and New York are up slightly while PA is down in milk production. For the northeast We are seeing milk prices increase through growth of Class III and Class IV. Cheese prices have moved up as have prices for butter and powered milk. Exports now account for 14% of US production so they make a huge difference. Its helping farmers by raising Class IV and Class II prices.

In the coming months, we expect:
Sept payments for Aug milk to be up $1 from Aug checks and a$1.70 over July milkchecks.
By November, payments for October milk can expect blend prices to be over $20.
In December for November milk, expect blend prices over $21.
In January for December milk, expect blend prices of $20.
But we expect cheese or powder milk need to go up a bit and remain stable to meet these prices.

Next spring….CME dairy futures are hanging at $18-$20 for Class III through next spring.

Bob Wellington is more pessimistic about milk production than USDA as feed conditions could get worse. If production is lower, likely have $20 milk prices into next summer. Could we see $25….likely not because as milk prices increase, likely to lose international markets, dampening milk prices. With 14% of milk exported, a loss of exports will impact
domestic milk prices.

Policy update:
MILC was reformulated on Sept 1, which is detrimental to dairy farmers facing tight margins. Many questions of future actions of House of Representatives on the new Farm Bill. If Farm Bill is extended, it would include revised MILC which is not going to help dairy farmers. There are some big changes in the current dairy provisions of the Farm Bill passed by the Senate. What will come out will depend on the action, or inaction, of the House.  Stay tuned.

Question on why we are seeing decline in fluid milk consumption….
School consumption is down with elimination of flavored milk and preference of cafeterias for fat free milk. Fat free milk doesn’t taste as good.
Lots of alternative drinks out there with lots of promotion.
Lots of imitators…soy milk, almond milk, available and being pushed.
Processors promoting alternative products which are likely more profitable than milk.
Class I consumption in recent years is linked to the growth of US population. More people, more fluid milk consumption but lower consumption per capitia. Hispanic population
consumption of fluid milk is a big plus.
As fluid milk consumption per capita goes down, other products as cheese, butter, soft products, and powder have a greater impact on milk prices.

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