DairyProfit Update for Dec. 6, 2012
Despite a drought-stressed dent in yields and production and reports of higher levels of mycotoxins, the overall quality of the 2012 U.S. corn crop was high, according to the U.S. Grains Council’s Corn Harvest Quality Report 2012/13. This year’s crop showed a year-over-year improvement in average text weight, protein levels and density, as well as lower moisture and broken corn and foreign material (BCFM) than the 2011 crop.
Tests conducted on corn samples in 12 states revealed:
• average test weight for the 2012/13 crop was 58.8 lbs./bushel.
• protein content averaged 9.4%, up from 8.7% in 2011.
• starch content averaged 73.0% in 2012, close to the 73.4% found in 2011.
• 78.0% of samples had no detectable levels of aflatoxins (above 2.5 parts per billion, or ppb, down from 97.9% in 2011; 14.1% of the samples tested above the FDA action level of 20 ppb.
• 94.9% of samples, had no detectable levels of DON (less than the 0.2 parts per million, or ppm); 100% tested below or equal to the FDA advisory level of 5 ppm.
The report assess the quality of the U.S. crop as it is delivered from farms to local elevators, the first step in entering international marketing channels. Visit www.grains.org.
California’s Milk Producers Council’s board of directors voted to support AB 31, a bill that would provide changes to the way California calculates prices for milk produced in California. The bill, which was introduced by California Assemblyman Richard Pan (D-Elk Grove/Galt/Lodi), can be found at http://goo.gl/8Le1u.
AB 31 would specifically address the methods used by the California Department of Food and Agriculture (CDFA) in calculating a minimum price for Class 4b milk that is produced in California and sold to the state’s cheese manufacturers.
Since 2010, the California Class 4b price has averaged $1.70/cwt. below the federal order Class III price, which is the benchmark price for milk being sold to cheese manufacturers in much of the U.S., MPC said.
“AB 31 is an opportunity for the California Legislature to do what CDFA has been unwilling to do: provide California dairy families with a fair price that is reasonably aligned with prices paid for milk throughout the country,” said Rob Vandenheuvel, MPC’s General Manager. “As our dairy farms face record high feed costs, we cannot afford to have CDFA continue this unjustified practice of discounting California’s milk.”
Like the U.S. dairy industry, Canada’s dairy industry faces many challenges. A new paper, “Canada’s Supply-Managed Dairy Policy: Challenges and Need for Evolution” looks at the Canadian dairy market and supply management policies that influence it.
While federal and provincial dairy policies under supply management have adapted to adjust and reconcile market forces, consumer preferences, new technologies and products, financial returns and production scale, these have not always been smooth, nor always completely successful. The basic mechanics of supply management were not developed to address some of these issues, and new product demands, improvements in technology, innovation among substitute products, and changing preferences create friction in the system.
While efforts to promote new product development, innovation and market growth can be constrained by existing federal and provincial rules on quota allocation and milk allocation to processors, the paper explains. However, while potent, these challenges do not mean that milk supply management must be abandoned or discontinued.
Factors affecting dairy income margins were mixed since the middle of November, according to the latest CIH Margin Watch report from Commodity & Ingredient Hedging, LLC. Margins improved slightly for the first quarter (Q1) of 2013, but were generally weaker in Q4 of 2012 and Q2-3 in 2013.
Milk prices held relatively steady over the past couple weeks, while feed costs increased, putting pressure on forward profitability. Renewed concerns over weather have developed over South American crop prospects. Concern is also building for the hay price outlook for next year, because one-third of all hay acres are located in the Plains, which remains mired in drought.
Class III milk futures prices have held relatively steady over the past few weeks, although product prices have come under pressure recently. Recent poor margins have increased dairy herd liquidation, especially in western states: 285,000 dairy cows were slaughtered during October, the highest of any month in the past decade. Visit www.cihmarginwatch.com.
Feed costs up, but Pennsylvania IOFC improves for third straight month
Pennsylvania’s November 2012 milk income over feed costs (IOFC) rose 1.9%, making it 62% higher than August levels, according to Penn State dairy economist Jim Dunn.
The November Pennsylvania all-milk price was up $1.00/cwt., to $23.80/cwt., the highest since August 2011. Higher hay prices (up 22%) offset falling corn and soybean prices, pushing feed costs up. At $6.29, average daily feed costs (at 65 lbs. of milk/cow/day) were up 40¢ from the previous month. IOFC for a cow producing 65 lbs. of milk per day was $9.18, up 17¢.
Measured another way, feed costs per hundredweight of milk produced averaged $9.68/cwt., resulting in a milk income margin over feed costs of $14.12/cwt., up 26¢ from October and the highest since September 2011.
Dunn forecasts the 2012 Pennsylvania all-milk price will average $19.90/cwt., increasing to $21.42/cwt. for the first half of 2013. Feed costs are still very high, but down considerably from their August peaks. However, given the apparent peak in milk prices in November, he does not expect Spring 2013 milk production to be as robust as in early 2012.
To read Dunn’s December Dairy Outlook, visit http://www.personal.psu.edu/faculty/j/w/jwd6/DairyOutlookdec12.pdf.
MARKETS: Barrels, Class III futures continue to slide
Today's market closing prices:
Butter: up 0.5¢, to $1.59/lb.
Cheddar blocks: unchanged at $1.76/lb.
Cheddar barrels: down 2.0¢, to $1.66/lb.
Grade A nonfat dry milk: unchanged, at $1.5575/lb.
Extra Grade nonfat dry milk: unchanged, at $1.56/lb.
Class III milk: -3¢ to -28¢, January through October 2013. Based on current CME closing prices, the 2012 average is $17.43/cwt.; the 2013 average is $18.33/cwt.; and the 2014 average is $16.17/cwt.
Corn futures lower, but soybeans, meal higher
Corn: -2¢ to -6¢ through December 2013. The 2013 average is $7.12/bu.
Soybeans: +3¢ to +13¢ through December 2013. The 2013 average is $14.33/bu.
Soybean meal: +$0.60 to +$5.20/ton through December 2013. The 2013 average is $414.60/ton.