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Financial Outlook for Dairy Scott Brown [email_address]
Volatility and Uncertainty to Remain In the Near Term  <ul><li>General Economic Outlook Becoming Worse </li></ul><ul><ul><...
U.S. Income Growth Global Insight, September 2008
Daily Livestock Report, October 7, 2008
Daily Livestock Report, October 7, 2008
Corn Prices Are Declining
Other Feed Prices Declining
Milk Futures Have Also Moved Lower
Two Possible Scenarios for 2009 <ul><li>Milk prices move substantially lower for the first half of 2009 </li></ul><ul><ul>...
U.S. Dairy Cows
U.S. Dairy Cows
U.S. Milk Yields
U.S. Milk Production 2008 189.6 billion pounds
Cheese Prices
Butter Prices
Nonfat Dry Prices
Retail Dairy Prices
Dairy Exports
Federal Order Class Prices
U.S. All Milk Price
Wisconsin Dairy Operating Costs
Milk Income Loss Contract (MILC) Program <ul><li>October 2008 through August 2012 </li></ul><ul><ul><li>45% of the price d...
MILC Trigger Calculation
Effect of the CWT Program on the US All Milk Price * * - Only includes 2008 CWT export assistance as of 10/16/2008 * - Inc...
My Forecast 2007 2008 2009 Milk Cows 9,153 9,265 9,216 (thou. head) Milk Production 185.6 189.6 190.9 (bill. pounds) All M...
Summary <ul><li>The first six to nine months of 2009 will be some of the toughest months dairy producers have faced in thi...
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Financial Outlook for Dairy - Scott Brown

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Scott Brown gave this presentation as part of the November 10, 2008 DAIReXNET Webinar on the Financial Outlook for the Dairy Industry.

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  • Feed costs have exploded for the dairy industry over the past four years. This rise in feed costs suggests that milk prices will not likely revisit lows established in 2003 any time soon but that dairy producers will become stressed quickly if milk prices fall far from current levels.
  • Milk Cows have been rising since January 2005. A much different story than has been the case historically. It is driven in large part by strong international demand for dairy products. It used to be this was a domestic sector that grew about one percent per year so if milk yields advanced two percent each year it meant that cow numbers needed to decline by one percent per year to keep domestic supply and demand in balance. That explains the decline in cow numbers over the 1980s and 1990s
  • These next two slides shows where the growth in cow numbers is occurring in the U.S. California and Idaho continue to remain strong growth states. Texas and Wisconsin show growth in the more recent period.
  • Milk yield growth has been slowing as a result of high feed costs and declining use of rBST. The February 2008 data is not adjusted to account for leap year.
  • Increases in both cow numbers and yields results in increased milk supplies. USDA currently estimates milk production at 189.5 billion pounds for 2008. Annual growth of nearly 4 billion pounds over the past four years is unusual and to continue will require continued strength in international markets
  • Nearly all U.S. dairy product prices are being driven by the current levels of international prices. It is important to realize how quickly global prices rose in 2007 for dairy products. If global prices decline as quickly and as far on a downturn, it will put U.S. dairy producers in a serious financial situation given high feed prices
  • Retail dairy prices have moved higher in this country over the past 18 months. This is resulting in weaker domestic consumption of dairy products. 2008 fluid consumption has been below year ago levels.
  • Exports of U.S. dairy products remain small relative to domestic production but have been growing immensely in 2008. We will show a record percentage of domestic milk supplies destined for other countries in 2008.
  • Luckily for dairy producers, the strong international demand for dairy products lifted farm-gate milk prices to record levels over the past 18 months. It is the primary reason this livestock industry has not seen the serious financial stress from high feed costs that have been the dominant news in the other meat sectors
  • Luckily for dairy producers, the strong international demand for dairy products lifted farm-gate milk prices to record levels over the past 18 months. It is the primary reason this livestock industry has not seen the serious financial stress from high feed costs that have been the dominant news in the other meat sectors
  • Transcript of "Financial Outlook for Dairy - Scott Brown"

    1. 1. Financial Outlook for Dairy Scott Brown [email_address]
    2. 2. Volatility and Uncertainty to Remain In the Near Term <ul><li>General Economic Outlook Becoming Worse </li></ul><ul><ul><li>U.S. </li></ul></ul><ul><ul><li>Rest of World </li></ul></ul><ul><li>US Consumer’s Becoming More Cautious At a Time US Dairy Producers Need More Demand </li></ul><ul><li>Major Equity Drain Could Have Major Effects on Food Spending </li></ul><ul><li>Where Do Oil Prices Move From Here? </li></ul>
    3. 3. U.S. Income Growth Global Insight, September 2008
    4. 4. Daily Livestock Report, October 7, 2008
    5. 5. Daily Livestock Report, October 7, 2008
    6. 6. Corn Prices Are Declining
    7. 7. Other Feed Prices Declining
    8. 8. Milk Futures Have Also Moved Lower
    9. 9. Two Possible Scenarios for 2009 <ul><li>Milk prices move substantially lower for the first half of 2009 </li></ul><ul><ul><li>The industry feels substantial pain that results in a larger supply adjustment </li></ul></ul><ul><ul><li>Allows for a better outlook for in the second half of the year </li></ul></ul><ul><ul><li>All milk prices below $15.50 per cwt. </li></ul></ul><ul><li>Milk prices tend to level at around $17 in the first half of 2009 </li></ul><ul><ul><li>Continued pain for much of the year </li></ul></ul><ul><ul><li>Requires an exogenous shock to get milk prices higher </li></ul></ul><ul><li>A possibility: Corn plantings down next spring and oil prices rise next summer </li></ul>
    10. 10. U.S. Dairy Cows
    11. 11. U.S. Dairy Cows
    12. 12. U.S. Milk Yields
    13. 13. U.S. Milk Production 2008 189.6 billion pounds
    14. 14. Cheese Prices
    15. 15. Butter Prices
    16. 16. Nonfat Dry Prices
    17. 17. Retail Dairy Prices
    18. 18. Dairy Exports
    19. 19. Federal Order Class Prices
    20. 20. U.S. All Milk Price
    21. 21. Wisconsin Dairy Operating Costs
    22. 22. Milk Income Loss Contract (MILC) Program <ul><li>October 2008 through August 2012 </li></ul><ul><ul><li>45% of the price difference </li></ul></ul><ul><ul><li>2.985 million pound cap </li></ul></ul><ul><li>January 2008 through August 2012 </li></ul><ul><ul><li>Dairy feed ration cost adjustment $7.35 </li></ul></ul><ul><ul><li>Calculate the trigger price as 45% of the percentage dairy feed ration exceeds $7.35 </li></ul></ul><ul><li>Revert to pre-2008 farm bill levels after August 2012 </li></ul><ul><ul><li>34% of the price difference </li></ul></ul><ul><ul><li>2.4 million pound cap </li></ul></ul><ul><ul><li>Dairy feed ration cost adjustment increases to $9.50 </li></ul></ul>
    23. 23. MILC Trigger Calculation
    24. 24. Effect of the CWT Program on the US All Milk Price * * - Only includes 2008 CWT export assistance as of 10/16/2008 * - Includes export assistance through 10/16/2008 Year 2003 2004 2005 2006 2007 2008 * US All Milk Price $12.55 $16.13 $15.19 $12.90 $19.13 $19.08 CWT Herd Retirement Impact $0.05 $0.16 $0.44 $0.55 $0.62 $0.57 CWT Export Assistance Impact NA $0.01 $0.01 $0.09 $0.16 $0.14 TOTAL CWT Impact $0.05 $0.17 $0.45 $0.64 $0.77 $0.71
    25. 25. My Forecast 2007 2008 2009 Milk Cows 9,153 9,265 9,216 (thou. head) Milk Production 185.6 189.6 190.9 (bill. pounds) All Milk Price 19.13 18.45 17.10 (dollars per cwt.) Class III Price 18.04 17.55 16.20 (dollars per cwt.) Class IV Price 18.36 15.20 13.80 (dollars per cwt.)
    26. 26. Summary <ul><li>The first six to nine months of 2009 will be some of the toughest months dairy producers have faced in this decade </li></ul><ul><ul><li>Domestic demand anemic </li></ul></ul><ul><ul><li>World demand for US dairy products will be less </li></ul></ul><ul><ul><ul><li>Increasing supplies from competitors </li></ul></ul></ul><ul><ul><ul><li>Slowing demand in Asian countries </li></ul></ul></ul><ul><li>Programs available to help in 2009 </li></ul><ul><ul><li>Dairy price support program </li></ul></ul><ul><ul><li>MILC program </li></ul></ul><ul><ul><li>CWT </li></ul></ul><ul><li>Things to watch in 2009 </li></ul><ul><ul><li>Corn plantings </li></ul></ul><ul><ul><li>Oil prices </li></ul></ul><ul><ul><li>General economy </li></ul></ul>
    27. 27. QUESTIONS
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