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DAIRY OUTLOOK Hal Harris Clemson University

DAIRY OUTLOOK Hal Harris Clemson University. Southern Outlook Conference September 2001 Atlanta, GA. BFP/Class III 1997-2001. $18. 1997. $17.34. 1998. $17. How High. 1999. ?. $16. 2000. 2001. $15. $14. Dollars Per Hundredweight. $13. $12. $11. $10. $9. $8. Jan. Feb. Mar.

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DAIRY OUTLOOK Hal Harris Clemson University

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  1. DAIRY OUTLOOKHal HarrisClemson University Southern Outlook Conference September 2001 Atlanta, GA

  2. BFP/Class III 1997-2001 $18 1997 $17.34 1998 $17 How High 1999 ? $16 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

  3. BFP or Class III Milk Price versus the Support Price, 1970-2000 $19 $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

  4. 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

  5. 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

  6. 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

  7. 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

  8. 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 Ratio 3.38 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

  9. Commercial Disappearance, Jan - May Percent Change from 2000 Fluid -0.1 NFD Milk 39.2 O Cheese 2.1 A Cheese 1.6 Butter -5.7 All 1.6 -10 0 10 20 30 40 50 Percent Change

  10. 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%

  11. 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%

  12. 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%

  13. 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%

  14. 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

  15. 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

  16. 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

  17. 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

  18. 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

  19. 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

  20. 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)

  21. Federal Order Prices (Utilizations May 2001) Class:Upper MidwestAll Orders I 21% 36% II 3% 9% III 75% 47% IV 1% 8%

  22. 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?

  23. 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

  24. 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

  25. Chapter 3 Administration Releases its “Farm Bill Principles”

  26. Supporting Prices is Self-Defeating • Supply Controls Unworkable • Stockholding Distorts Markets • Programs Have Unwanted Consequences

  27. Land Values Inflated • Large Farms Get Most Benefits

  28. 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

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