2016 Dairy Outlook: 'Hunker Down'

 
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Dairy farmers should be prepared for an extended period of low margins, likely exceeding beyond the first half of 2016.

That’s pretty much the consensus view of a panel on the dairy market presented at the 2016 Dairy Strong Conference sponsored by the Dairy Business Association here in Madison, Wis. this week.

“I would love to tell you we’ll see a [recovery] by the second half of the year,” says Mary Keough Ledman, a dairy economist with Keough Ledman Associations.  But that’s not likely to happen, and if it does, it might only be a cheese market rebound to $1.65 to $1.80/lb, which would translate to $16.50 to $18/cwt Class III prices.

“I’m not talking about $1.90 to $2 cheese, and a whey price (currently less than 30¢/lb) at 50¢/lb.,” she says. Those types of prices are required to get to levels seen in 2014, and they’re not likely to happen anytime soon due to the more than ample milk supply in cheese producing regions.

In November, income-over-feed-cost margins were about $10 the Midwest and New York, $9 in Idaho and $8 in California. Come February and March, those margins will likely erode $2 to $3/cwt.  So Ledman’s advice to dairy farmers is pretty simple: “Hunker down. And I would not put one more cow onto your operation until I ask my milk buyer if he has room for her production.”

Those views were shared by Bob Witt, a senior dairy lender with Wells Fargo and David Rinneard, a regional sales manager with BMO Harris Bank.  

Witt, who has about 20% of his clients in California and the Southwest, says conditions there are worse than in the Midwest. “If you’re in the Southwest, the basis (the difference between the producer mailbox price and Class III) ranges from -$1 in times of milk surplus to 50¢/cwt when milk supplies are tight. Right now, they are negative, and the losses of 2015 are stretching into 2016,” he says. “We’re in for a couple of tough years.”

In 2016, clients will start to see equity erosion, says David Rinneard, regional sales manager with BMO Harris Bank. “Risk management will be fundamental to success,” he says. At the same time, he has some clients who are planning moderate expansions in 2016.

“They’ve planned for expansion, and they’ve squirreled away cash the last two years to make it happen,” he says. But with lowered milk price expectations, some might shelve those plans for 12 to 18 months.

 

 

 

 

 

 

 

 

 

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Brent
Caro, MI
1/20/2016 06:25 AM
 

  I have milked 35 cows 110 220 550 1000 1500 so I can actually tell you first hand that there are efficiencies in scale. It may be compensating for things in some cases but a couple million a year can do that. I know a guy great guy started milking 6 cows 15 years ago really smart he's from sterling I will. Refer to him as t.o. He was too busy working to worry about other people. He paid attention and grew his business a prudent business person would follow his example. I will throw a question out there for the pa guy who thinks 500 cows is enough, how many cows did your grandpa think was enough. Farms have to find efficiencies and capitalize on it. I feel real bad for you because 350 to 500 is about the worst size dairy to own I hope you inherited it.

 
 
Timothy
standish, MI
1/20/2016 05:07 PM
 

  Brent your a funny guy, your idol didn't start with 6 cows, it started with a settlement in Circuit Court with his brother. Is Bernie Madoff and the great Mike Stamp your other heroes, there are great run large dairies around but.

 
 
Timothy
standish, MI
1/14/2016 05:56 AM
 

  Now is the time to get rid of the volume premiums where co-ops take from the little dairy to pay the bigger ones more, this skewers the free market system and destroys the co-op concept where farmers pool together so EVERYONE gets a fair price. Stop favoring one sector of Dairy over another. The ability to manage is natural selection enough. Now is the time, in a time of abundance to get rid of a totally unfair program that contributes to over supply.

 
 

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