DAIRY OUTLOOK Hal Harris Clemson University

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DAIRY OUTLOOKHal HarrisClemson University

• Southern Outlook Conference
• September 2001
• Atlanta, GA

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BFP/Class III 1997-2001
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1997
17.34
1998
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How High
1999
?
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2000
2001
15
14
Dollars Per Hundredweight
13
12
11
10
9
8
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Aver
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BFP or Class III Milk Price versus the Support
Price,
1970-2000
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17
Support price
BFP/Class III price
15
13
Dollars Per Hundredweight
11
9
7
5
3
Jan-70
Jan-72
Jan-74
Jan-76
Jan-78
Jan-80
Jan-82
Jan-84
Jan-86
Jan-88
Jan-90
Jan-92
Jan-94
Jan-96
Jan-98
Jan-00
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Number of milk cows, 20 states, 1997-2001
1997
7840
1998
7820
1999
2000
7800
2001
7780
7760
Thousand Head
7740
7720
7700
7680
7660
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
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Number of milk cows, 20 states, 1997-2001
1997
7840
1998
7820
1999
2000
7800
2001
7780
7760
Thousand Head
7740
7720
7700
7680
7660
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
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Milk per cow, 20 states, 1997-2001
1700
1997
1998
1650
1999
2000
1600
2001
1550
Pounds
1500
1450
1400
1350
1300
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
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Total Milk Production, 1997-2001, 20 States
13000
1997
1998
12500
1999
2000
2001
12000
Million Pounds
11500
11000
10500
10000
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
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Milk feed price ratio
4.3
1999
4.17
4.09
2000
4.1
4
2001
3.85
3.9
3.84
3.73
3.67
3.65
3.7
3.61
3.59
3.5
3.4
3.39
3.38
Ratio
3.32
3.31
3.29
3.25
3.3
3.21
3.17
3.12
3.11
3.1
3.07
3.1
3.04
3.03
3.02
2.94
2.94
2.9
2.9
2.8
2.67
2.7
2.5
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
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Commercial Disappearance, Jan - May
Percent Change from 2000
Fluid
-0.1
39.2
NFD Milk
2.1
O Cheese
1.6
A Cheese
Butter
-5.7
1.6
All
-10
0
10
20
30
40
50
Percent Change
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1998 Summary

Average BFP 14.24 a record

Average all milk price 15.46

Average number of cows 9,154,000
-
1.1

Milk per cow 17,189 1.9

Total milk production 157.3 billion Lbs 0.8

Commercial disappearance 159.8 billion Lbs
2.3

Imports 4.59 billion pounds 41.2
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1999 Summary

Average BFP 12.86

Average all milk price 14.38

Number of milk cows 9,156,000 0.1

Milk per cow 17,772 3.4

Total milk production 162.7 billion lbs 3.5

Commercial disappearance 164.9 billion lbs
3.2

Imports 4.77 billion pounds 4/0
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2000 Summary

Average Class III 9.74

Average all milk price 12.34

Average number of cows 9,210,000 0.6

Average milk per cow 18,204 2.4

Total milk production 167.7 billion Lbs 2.7

Commercial disappearance 169.2 billion lbs
2.3

Imports 4.45 billion lbs
-
6.8
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What is going on in 2001

July Class III 15.46, 4.80 higher than July
2000 (July 10.66)

Average number of cows Jan

June. 9,141,000 or
-
0.6

Average milk per cow Jan

June. 9,183 pounds or

1.0

Total milk production Jan

June 83.9 billion lbs.
or
-
1.7

Commercial disappearance Jan

May 1.6
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CME Grade AA Butter Prices, 1999-2001
2.10
1999
1.90
2000
2001
1.70
1.50
Dollars Per Pound
1.30
1.10
0.90
0.70
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
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CME 40 Cheddar Block Price, 1999-2001
2.00
1.90
1999
1.80
2000
1.70
2001
1.60
Dollars Per Pound
1.50
1.40
1.30
1.20
1.10
1.00
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
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NFD Milk Western Price, 1999-2001
1.0200
1.0150
1.0100
Dollars Per Pound
1.0050
1999
1.0000
2000
2001
0.9950
0.9900
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
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Why these dairy product prices are important?

• Farm level milk prices based off of butterfat,
  protein, and other solids component values.
• Component values based off of dairy product
  prices
• - Butterfat price off of price of butter
• - Protein price off of price of cheese
• - Other solids price of price of dry whey
• Class III price per 100 pounds is the sum of the
  butterfat, protein and other solids values in 100
  pounds of milk

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Other class prices

• Class IV Butterfat value same as Class III and
  nonfat solids value based off of nonfat dry milk
  price.
• Class II Advanced Class IV plus 0.70 plus Class
  III butterfat value.
• Class I Higher of advanced Class III or Class
  IV skim value plus an advanced butterfat price
  plus a Class I differential that varies by market

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Producers get paid

• Price per pound of butterfat marketed
• Price per pound of protein marketed
• Price per pound of other solids marketed
• Somatic cell count payment/deduct per 100 Lbs.
• Producer Price Differential per 100 pounds
• Other competitive premiums
• The point There are major differences in prices
  received among producers in a given market and
  between markets

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What about the Butter/powder tilt?

• Support price 9.90 (3.67 butterfat test)
• As of June 13th, CCC purchase prices
• Butter 0.6549 to 0.8548 (0.1999)
• NFD 1.0032 to 0.90 (-0.1032)

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Federal Order Prices (Utilizations May 2001)

• Class Upper Midwest All Orders
• I 21
  36
• II 3
  9
• III 75
  47
• IV 1
  8

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Movers of Class I II

• Class I is the higher of skim milk value of
  Class IV or Class III, plus a Class I
  differential
• Class II is the Class IV skim milk value plus
  0.70
• Question Will nonfat dry milk price to and stay
  at the 0.90 support level?

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The punch line What will we see for milk prices
the remainder of this year and 2002?

• The answer It depends upon the weather.
• Cow numbers are lower, but seem to be stabilizing
• Replacement heifers are short on supply and high
  priced.
• - 3.6 million head July 1,2001, down 3, and
  only 39 per 100 milk cows.
• - Changing dairy farm structure is impacting
  dairy replacement numbers
• - Dairy expansions limited by number of
  replacements and price of replacements

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Other factors to consider

• Milk per cow is improving
• Feed prices
• - Milk feed price ratio will remain favorable
  (the ratio of pounds of 16 mixed dairy feed
  equal in value to 1 pound of whole milk.
  Considers alfalfa, corn and soybean prices.
• - High quality Alfalfa hay is short supply
• - combination of electrical power pressure and
  environmental pressures in the Pacific NW
• - Utilities paid farmers to idle land in Idaho
  (250,000 acres) and Washington (70,000 acres)
• - water cut-offs to protect fish habitats
• - However innovative rations without alfalfa
• Slowing of demand growth

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Chapter 3
Administration Releases its Farm Bill Principles
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• Supporting Prices is Self-Defeating
• Supply Controls Unworkable
• Stockholding Distorts Markets
• Programs Have Unwanted Consequences

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• Land Values Inflated
• Large Farms Get Most Benefits

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Principles

• Learn from Past Lessons
• Recognized New Operating Environment
• Expand Open Markets
• Grow the Sector by Global Expansion
• Compatible Farm Trade Policy
• Strengthen Global Leadership
• Build on Diversity
• Market Oriented Safety Net
• Build Infrastructure