DairyBusiness Update for Jan. 8, 2013
Andrew Novakovic, an expert on the Farm Bill and professor of agricultural economics at Cornell University, said Congress’ failure to produce a new long-term Farm Bill it its “fiscal cliff” compromise provides predictability to 2013, but not beyond.
“Some specifics of the extension include the 2008 Dairy Product Price Support Program reauthorized through Dec. 31, 2013,” he continued. “This means the new ‘go back to the 1949 Act’ dairy cliff is pushed to the end of 2013. It also means that the equivalent of a $10 support price for Class III and IV milk remains in effect, which is to say no effect at all.
“The Milk Income Loss Contract (MILC) program that compensates dairy producers when prices fall below specific levels is extended by simply changing all the 2012 dates for MILC in the 2008 Farm Bill to 2013,” Novakovic continued. “This means that the more generous formula and larger production cap goes back into effect and extends through Aug. 30, 2013. This raises the possibility of retroactive payments to farmers. Because of some ambiguity in the bill's language, it is not entirely clear whether this would include milk produced in September 2012, which is important to farmers because it is the only retroactive month with a significant payment opportunity.”
“A more interesting question may be, where do we go from here? A 2013 Farm Bill could look quite different from the 2012 Farm Bill that emerged from the Senate and the House Ag Committee discussions. Educated guesses are that the 2013 conditions will be less favorable for agriculture and food programs,” he concluded.
Pennsylvania’s final 2012 milk price and feed costs numbers turned out very differently than they looked a few months ago, according to Jim Dunn, Penn State dairy economist.
The Pennsylvania all-milk price began high and drifted down to its summer doldrums, but rose $6/cwt. from its June low until its November high. After peaking in November at $23.60/cwt., the December Pennsylvania all-milk price fell by 50¢, to $23.10/cwt. The 2012 average all-milk price of $20.07/cwt., $1.08 above the five-year average of $18.99/cwt.
The milk margin followed a similar path. Because the drought drove feed prices so much higher (and the bad weather in 2011 meant feed shortfalls for many northeastern farms earlier in 2012), most farms struggled from February through August or beyond. Penn State’s measure of income over feed costs (IOFC) fell by 6% (to $8.56/day) in December, lower than the previous two months, but higher than any other month in 2012. The December 2012 IOFC level was the highest December value in the past 5 years.
“Dairy futures for the coming months are lower than the December’s levels, but not a lot, and the feed price situation is lower, although still at a high level,” Dunn said. “Based on what is known now, IOFC will be less in coming months, but not dramatically so.”
Dunn forecasts a 2013 average Pennsylvania all-milk price of $21.39/cwt., $1.32 more than the 2012 average.
To see Dunn’s January 2013 dairy outlook, visit http://www.personal.psu.edu/faculty/j/w/jwd6/DairyOutlookjan13.pdf
MARKETS: Butter, blocks tumble; 2013 Class III futures mostly lower
Today's market closing prices:
Butter: down 3.5¢, to $1.45/lb.
Cheddar blocks: down 4¢, to $1.72/lb.
Cheddar barrels: unchanged at $1.69/lb.
Grade A nonfat dry milk: unchanged, at $1.5575/lb.
Extra Grade nonfat dry milk: unchanged, at $1.56/lb.
Class III milk: -1¢ to -21¢, February through September 2013. Based on current CME closing prices, the 2012 average is $17.44/cwt.; the 2013 average is $18.29/cwt.; and the 2014 average is $16.35/cwt.
Corn, soybean meal futures up
Corn: +2¢ to +4¢ through July 2014. The 2013 average is $6.48/bu.
Soybeans: mixed in a narrow range through November 2014. The 2013 average is $13.58/bu.
Soybean meal: +$1.80 to +$3.50/ton through September 2014. The 2013 average is $391.06/ton.
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