DairyProfit Update for May 16, 2012
Current year milk and dairy product prices continue a downward glide as milk production continues to expand, despite lower producer returns in the face of high feed prices, according to USDA’s latest dairy outlook report, released May 16. The report largely mirrors last week’s World Ag Supply & Demand Estimates report. Next year’s milk production increase is expected to be slight, as the cow herd contracts and demand becomes somewhat stronger, lifting prices.
Milk prices for 2012 were revised downward based on lowered product prices, but remain more bullish than current CME futures prices. (To see a table for quarterly milk price forecasts from USDA and quarterly averages of CME futures contracts, click here.)
The 2012 Class III price is projected at $15.80-$16.30/cwt.; the Class IV price was lowered to $14.50-$15.10/cwt.; and all milk is projected at $16.90-$17.40/cwt.
In 2013, milk prices should recover. The Class III price is forecast at $16.20-$17.20/cwt.; the Class IV price is forecast to rebound to $15.40-$16.50/cwt.; and the all milk price is expected to climb to $17.25-$18.25/cwt.
Ag lender surveys showed high commodity prices pushed farmland values higher in the first quarter of 2012 across the nation’s heartland, although drought continued to negatively impact conditions in the South. With the outlook for lower corn prices – combined with higher costs – agriculture faces a more challenging road to profits in 2012 than in 2011.
• Average farmland values in the Federal Reserve Bank of Chicago (covering all or portions of Illinois, Indiana, Iowa, Michigan, Minnesota and Wisconsin) increased 5% in the first quarter of 2012, and are 19% higher than the first quarter of 2011.
• Improved farm income and easing of drought conditions helped push land values higher in the Federal Reserve Bank of Kansas City (covering Colorado, Kansas, Nebraska, Oklahoma, Wyoming, the northern half of New Mexico and the western third of Missouri). For the first time since the survey began in the late 1970s, the annual value of district cropland rose more than 20% for two consecutive years.
• The story was different in the Federal Reserve Bank of Dallas, covering all or portions of Texas, New Mexico and Louisiana. Bankers responding to the first-quarter survey noted early rains improved drought conditions, but said more moisture was needed. Input costs for farmers and ranchers increased, negatively impacting producers’ margins.
CIH: May dairy margins improve
May dairy margins improved slightly since the end of April, primarily due to lower feed costs as both corn and soybean meal prices have begun to correct, according to the latest CIH Margin Watch report from Commodity & Ingredient Hedging, LLC. Projected forward profit margins remain well below average though, and are still negative through the third quarter of 2012, while only barely above breakeven in in the fourth quarter of 2012 and first quarter of 2013.
Milk prices have recovered slightly over the past week, although they remain well below where they were in early April. The results of the latest Global Dairy Trade auction revealed lower prices in almost every category, with the exception of cheddar cheese and lactose. Anhydrous milk fat prices in particular were down sharply, dropping 13.6% from the last event, as butter continues to weigh on the dairy complex. Visit www.cihmarginwatch.com.
The Missouri Dairy Association (MDA) called on Missouri's congressional delegation to support the proposed Dairy Security Act (DSA) in the next Farm Bill.
"It's time to reform dairy policy," said Larry Purdom, MDA president and a dairy farmer from Purdy, Mo.
In a letter to Missouri's congressional delegation, Purdom said, "Missouri’s dairy farmers have suffered financially because of extreme margin volatility – dramatic swings in the difference between milk prices and feed costs. Our current dairy safety net policies are simply unable to be effective in this roller coaster of volatility.
"Extreme market volatility has contributed to Missouri’s loss of dairy farmers and cow numbers,” he continued. “The impact on our state has been devastating in the loss of jobs on the farm, with needed service providers and with our dairy processing plants. We only produce about half of the milk today that is needed by our state for all uses—fluid milk, cheese, yogurt and butter.”
MARKETS: Butter, barrels, Class III up a little
Today's market closing prices:
Cheddar barrels: up 1¢, to $1.46/lb.
Cheddar blocks: unchanged, at $1.50/lb.
Butter: up 0.25¢, to $1.3550/lb.
Extra Grade nonfat dry milk: unchanged, at $1.0825/lb.
Grade A nonfat dry milk: unchanged, at $1.1225/lb.
Class III milk: +1¢ to +38¢ through January 2013. Based on current closing prices, the 2012 average is $15.68/cwt.; 2013 average is $15.83/cwt.
Corn, soybean meal futures higher
Corn: +9¢ to +23¢/bushel through December 2013. The 2012 average is $5.61/bu.; 2013 average is $5.42/bu.
Soybeans: -7¢ to +9¢/bushel through November 2013. The 2012 average is $13.65/bu.; 2013 average is $12.43/bu.
Soybean meal: +$2.20 to +$7.80 through December 2013. The 2012 average is $394.42/ton; 2013 average is $338.55/ton.