Cornell conference: Many factors, issues will impact dairy in 2013

 

By Joel Hastings

Lower feed prices, higher milk prices and a slowly improving national economy are in store in 2013, according to a consensus of presenters at the Agribusiness Economic Outlook Conference, Dec. 18, on the Cornell University campus, Ithaca, N.Y. The annual session, organized by Cornell’s Dyson School of Applied Economics and Management, includes presentations by school faculty and outside guest speakers.

National economic forecasts and ag policy reviews highlighted the morning session. Cornell economics professor Steve Kyle led off with an energetic review of his predictions from a year ago, and then a look ahead to 2013. He predicts slow but steady growth in gross domestic product (1%-2%), slowly falling unemployment rates (7% by year end), continued low interest rates, low inflation and an improving housing market, which he believes has bottomed out. All this is possible – barring unforeseen major upsets such as a financial meltdown in Europe that would threaten the existence of the euro, or the outbreak of another war in the Middle East or elsewhere.

Ag economics professor Andy Novakovic led a panel discussion on a number of national ag issues, including Julie Suarez, director of public policy for New York Farm Bureau; Mark Heller, reporter for Daily Tax Report and Daily Report for Executives of the Bloomberg news network; and David Salmonsen, senior director of congressional relations for the American Farm Bureau.

 

The panel was pessimistic about prospects for the 2012 Farm Bill being acted on either in the “lame duck” session, or even early next year. Having food assistance as part of federal farm policy in the past has been a good thing, helping drawing support from urban lawmakers. However, the amount of that support has been a roadblock in getting full support in the House this year.

The group was optimistic comprehensive immigration legislation would be developed and passed that included provisions dealing realistically with ag labor.

In the afternoon, concurrent sessions were held, one featuring dairy, and the other highlighting fruit and vegetable crops, grapes, wine and horticultural topics.

In the dairy specific session in the afternoon, Ed Staehr, communications director for NY FarmNet/NY FarmLink in Cornell’s Department of Applied Economics and Management, provided an outlook for feed and grain. He predicted 2013 feed prices marginally below 2012 – but still relatively high – with domestic feed utilization down. If normal weather allowed a good crop, corn could average $6/bushel and perhaps drop even further, he said. About 34% of this year’s crop has gone for ethanol production, he said, predicting a lower number for 2013. He emphasized that managing the margin between feed cost and milk price would be increasingly important. 

Mark Stephenson, director of dairy policy analysis at the University of Wisconsin-Madison and a former member of the Cornell faculty, discussed the weather’s impact, not only in the U.S., but also in New Zealand and Australia. Good weather and moderate rains “down under” allows higher milk production and more dairy product exports, often successfully competing with U.S. products.

Regarding domestic sales of dairy products, Stephenson said the U.S. industry must adjust to lower fluid sales due to intense competition in the beverage market. He pointed out per capita consumption of all dairy products is increasing. He predicted a 2013 average all-milk blend price $1.50/cwt. higher than 2012, and concurred with Staehr’s prediction of a lower corn price by $1/bushel, depending on a return to normal weather patterns. He said cull cow prices will likely hold up well through next year. 

Regarding the risk management insurance that would be created by the new farm bill, Stephenson said he and other ag economists are working on a computer program which would allow producers to input their individual data and receive recommendations on how best to participate – or not – should it become law.

He also predicted that should a farm bill, with its new dairy provisions, not pass by year end, the USDA secretary would find administrative ways to keep the milk price from returning to its 1947 support price level, so as not to disrupt the marketplace until legislation could be passed early in the new year. 

Concluding the day’s program, Novakovic said supply management aspects of proposed dairy policy would not be accepted by some, especially larger producers who have other ways to manage margins. He predicted a 50/50 chance California producers would opt to join the federal milk marketing order system. He also said there is a 50/50 chance a full farm bill will be attached to an economic agreement between President Obama and Congress – if indeed there is one.

While pending free trade talks involving Pacific Rim countries, the U.S. and Canada is often viewed as a threat to Canada’s quota system, Novakovic said free trade with Canada might well bring an end to the U.S. federal order structure of classified pricing. He said he couldn’t see how Canadian processors, milk buyers, could be required to pay prices set by the U.S. order in a free trade environment.

Congressional action aimed at reducing the deficit could affect such things as investment tax credits and inheritance taxes, impacting dairy producer business plans and the dairy industry, he concluded.