Financial Outlook for Dairy - Scott Brown

Financial Outlook for Dairy Scott Brown [email_address]

Volatility and Uncertainty to Remain In the Near Term
General Economic Outlook Becoming Worse
U.S.
Rest of World
US Consumer’s Becoming More Cautious At a Time US Dairy Producers Need More Demand
Major Equity Drain Could Have Major Effects on Food Spending
Where Do Oil Prices Move From Here?

U.S. Income Growth Global Insight, September 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
Milk prices move substantially lower for the first half of 2009
The industry feels substantial pain that results in a larger supply adjustment
Allows for a better outlook for in the second half of the year
All milk prices below $15.50 per cwt.
Milk prices tend to level at around $17 in the first half of 2009
Continued pain for much of the year
Requires an exogenous shock to get milk prices higher
A possibility: Corn plantings down next spring and oil prices rise next summer

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
October 2008 through August 2012
45% of the price difference
2.985 million pound cap
January 2008 through August 2012
Dairy feed ration cost adjustment $7.35
Calculate the trigger price as 45% of the percentage dairy feed ration exceeds $7.35
Revert to pre-2008 farm bill levels after August 2012
34% of the price difference
2.4 million pound cap
Dairy feed ration cost adjustment increases to $9.50

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 * - 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

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.)

Summary
The first six to nine months of 2009 will be some of the toughest months dairy producers have faced in this decade
Domestic demand anemic
World demand for US dairy products will be less
Increasing supplies from competitors
Slowing demand in Asian countries
Programs available to help in 2009
Dairy price support program
MILC program
CWT
Things to watch in 2009
Corn plantings
Oil prices
General economy

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Financial Outlook for Dairy - Scott Brown

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