Dairy Outlook. July By Jim Dunn Professor of Agricultural Economics, Penn State University. Market Psychology

Transcription

1 Dairy Outlook July 2013 By Jim Dunn Professor of Agricultural Economics, Penn State University Market Psychology The CME block price fell by 5% in the last month, ending 8.75 /lb. lower at $1.665/lb. Most of this price decrease occurred in the second half of June, and the cheese price has recovered slightly since. Cheese inventories are very high, with May s cheese inventories 8% higher than last year. Of course in the second half of last year, cheese prices rose sharply, having done nothing in the first half. The lower inventories buoyed prices then, as they will depress prices now. Whey prices are about the same as last month. The whey price has been flat since April 1. Butter fell steadily through June, before recovering much of the losses in July. It was on July, 2 below last month s level. Skim milk powder rose 3.75 /lb. in gradual steps since early June. International powder markets continue to be strong, and powder prices are up 17% since March. Table 1 lists some past and estimated future milk prices. The June Pennsylvania all-milk price was $0.40 higher than May at $21.40/cwt. The June Class III price was $0.50 lower than in May at $18.02/cwt. The Class III futures price for July is $0.78 lower at $ Class III futures prices for the rest of 2013 are have lost ground since last month, averaging 75 /cwt. lower than at this time last month. The June Class IV price was down $0.01/cwt. from May at $18.88/cwt. The Class IV futures price for July is $ Class IV futures prices average 19.09/cwt. for the rest of 2013, essentially the June Class IV price. Based on the futures prices, the forecast PA all-milk prices for 2013, are also shown in Table 1. My forecast of the average PA all-milk price is $21.36/cwt. for 2013 overall, or $1.33/cwt. more than the 2012 average price. The past month has been hard on Class III prices, reflecting the record cheese inventories. Despite the inventory levels, the industry is not particularly bearish about the prospects for cheese. The big wild card is Australia and New Zealand. They and all of the other exporters have lower 1

2 production, and so U.S. export opportunities for cheese should be good. The U.S. dollar is up in the past month against the Euro and the New Zealand and Australian dollars recently. All three are off by at least 2% since a month ago, with the Australian dollar especially weak. It was selling for $1.05 US in January and is $0.906 now. I wondered if the weakness in the Aussie dollar were tied to a in government, but it is more about the prospect of their Central Bank leaving interest rates at a low level. The ruling Labor Party d its Prime Minister last week in an internal party dispute. The House of Representatives voted down the Farm Bill last month, as internal disagreements in the Republican majority led to a major defeat of the bill. Supposedly, they will revisit the bill soon, but a week off will not the underlying disagreement. There is even talk of splitting the farm programs from the nutrition programs in order to get the bill out of the House. The dairy stabilization program is a significant point of disagreement, so it seems unlikely that the proposed supply controls will be in the final bill. Corn and Soybean Markets Nearby corn markets have been steady as recent news about corn inventories have been below market expectations, while the price for the 2013 crop have fallen sharply. Acreage planted is the highest since 1936 and the weather has been favorable, so the corn crop should be a record and we should see lower prices and sizeable inventories if the weather doesn t abruptly. December futures are $4.91/bu., while the July contract settled at $6.85. The soybean situation is similar. The July soybean futures contract is at $15.88/bu. and the November contract settled at $ Soybean meal reflects the same situation. In all three markets, the nearby contracts are higher than last month, with corn and beans up 5% and meal up 9%. The harvest periods are all down, with December corn down 11% since June. Income over Feed Costs (IOFC) Penn State s measure of income over feed costs rose by 7.4% in June. This is an increase of 56 /cow/day. The June value is $7.97/cow/day. As seen in Figure 1, the 2

3 IOFC level for June 2013 is above the average value for June in the past four years. Most of the increase in IOFC is because of lower feed costs, which fell by 4.7% from May levels. The June PA all-milk price rose by $0.40 from May to $21.40/cwt. The cost of feeding a cow fell by 30 /day to $5.94. Both alfalfa hay and soybean meal fell by more than 8% from the previous month. Corn prices rose by 2 /bu. Income over feed cost reflects daily gross milk income less feed costs for an average cow producing 65 pounds of milk per day. Compared to last year or most recent years, the s in income over feed cost are small. Figure 1 and Table 2 showing the monthly data are appended. The allocation of the revenue per hundred pounds of milk is shown in Table 3. The milk margin is the estimated amount from the Pennsylvania all milk price that remains after feed costs are paid. As with income over feed cost, this measure shows that the June PA milk margin was 7.4% higher than May. Production As can be seen in Figure 2, milk production for May was more than the previous May. May s milk production was 0.8% above May After tracking 2012 milk production for the first four months of the year, May s value decreased less than the drop of May It is likely that milk production values for July will be lower, as the extreme heat in the southwest will hurt production. A Longer Run View: Ex Rates Ex rates are very important part of the competitiveness of exports. Figure 3 shows the relative ex rates for the U.S. dollar compared to the currencies of the other major dairy exporters since January It shows very clearly that the relative price of American products compared to Australia and New Zealand is very different, while compared to the European Union, the s are considerably less. In 2009, American dairy exports collapsed as the very strong dollar made us uncompetitive. Since then our exports have been much greater, with 2013 setting a record so far. The improvement in the relative ex rates is an important part of that. Earlier in this report I mentioned the drop in the Australian dollar. That means Australians travelling overseas find their money 3

4 doesn t go as far, while outsiders travelling to Australia find it more affordable. The trade impacts are the same. Table 1. Prices and Futures Prices for 2012 and 2013 (Based on futures prices of July 5, 2013) PA All PA All 2012 Class III Class IV 2013 Class III Class IV $/cwt $/cwt $/cwt $/cwt $/cwt $/cwt Jan $17.05 $16.56 $21.10 Jan $18.14 $17.63 $21.40 Feb $16.06 $15.92 $19.60 Feb $17.25 $17.75 $21.10 Mar $15.72 $15.35 $19.00 Mar $16.93 $17.75 $20.70 Apr $15.72 $14.80 $18.40 Apr $17.59 $18.10 $20.80 May $15.23 $13.55 $17.90 May $18.52 $18.89 $21.00 Jun $15.63 $13.24 $17.50 Jun $18.02 $18.88 $21.40 Jul $16.68 $14.45 $18.10 Jul $17.24 $19.10 $21.24 Aug $17.73 $15.76 $18.90 Aug $17.96 $19.43 $21.78 Sep $19.00 $17.41 $20.80 Sep $18.52 $19.57 $22.14 Oct $21.02 $18.54 $22.80 Oct $18.47 $19.21 $21.96 Nov $20.83 $18.66 $23.60 Nov $18.15 $18.97 $21.68 Dec $18.66 $17.83 $22.70 Dec $17.80 $18.25 $21.18 Annual $17.44 $16.01 $20.03 Annual $17.88 $18.63 $21.36 Annual -$ $ $ 2.08 Annual $ 0.44 $ 2.62 $ 1.33 % -5.0% -15.9% -9.4% % 2.5% 16.4% 6.6% Table 2: PA Income over Feed Costs Feed Income All Cost per over feed Price 65 lbs. cost Month Jan-12 $21.10 $5.39 $8.33 Feb-12 $19.60 $6.11 $6.63 Mar-12 $19.00 $6.16 $6.19 Apr-12 $18.40 $6.02 $5.94 May-12 $17.90 $5.81 $5.83 Jun-12 $17.50 $5.37 $6.00 Jul-12 $18.00 $5.95 $5.75 Aug-12 $18.90 $6.63 $5.66 4

5 Sep-12 $20.80 $6.01 $7.51 Oct-12 $22.80 $5.89 $9.01 Nov-12 $23.60 $6.24 $9.10 Dec-12 $22.70 $6.52 $8.24 Jan-13 $21.40 $6.01 $7.90 Feb-13 $21.10 $6.16 $7.56 Mar-13 $20.70 $6.06 $7.39 Apr-13 $20.80 $6.30 $7.22 May-13 $21.00 $6.24 $7.41 Jun-13 $21.40 $5.94 $7.97 Table 3: PA Margin All milk price per cwt. margin per cwt. Feed cost per cwt. Jan-12 $21.10 $8.29 $12.81 Feb-12 $19.60 $9.40 $10.20 Mar-12 $19.00 $9.47 $9.53 Apr-12 $18.40 $9.25 $9.15 May-12 $17.90 $8.93 $8.97 Jun-12 $17.50 $8.26 $9.24 Jul-12 $18.00 $9.15 $8.85 Aug-12 $18.90 $10.19 $8.71 Sep-12 $20.80 $9.25 $11.55 Oct-12 $22.80 $8.94 $13.86 Nov-12 $23.60 $9.60 $14.00 Dec-12 $22.70 $10.03 $12.67 Jan-13 $21.40 $9.25 $12.15 Feb-13 $21.10 $9.48 $11.62 Mar-13 $20.70 $9.33 $11.37 Apr-13 $20.80 $9.69 $11.11 May-13 $21.00 $9.59 $11.41 Jun-13 $21.40 $9.14 $

6 mil. lbs. $/cow/day Figure 1: PA Income over feed cost yr avg 0 Jan Mar May July Sept Nov Figure 2: Monthly Production 17,500 17,000 16,500 Monthly Production 30 Day months ,000 15,500 15,000 14,500 Jan Mar May Jul Sep Nov Source:USDA 6

7 Figure 3: Relative Ex Rates Australia New Zealand Euro Ex Rates Relative to US Dollar 2009-Present January 2009=1 low number means US products are more competitive Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 7