Know Your Market
Evaluate the Past, Ask the Right Questions and Plan for 2012
Dec 25, 2011
A look at Livestock Gross Margin for Dairy, ethanol and feed costs to help you prepare for the coming year.
By Marvin Carlson, Dairy Gross Margin, LLC
Key issues bring good questions, which aren’t always easily answered:
• USDA/RMA did use $13.2 million of the subsidy for Livestock Gross Margin–Dairy. No more subsidy money will be available until October 2013, unless this pilot program is changed by congress or in the 2012 farm bill. Can it be moved off of pilot status? Can the farm bill increase the subsidy or take off the cap? Can the industry agree on a risk management plan that is equitable for everyone? All good questions, with no good answers.
• Scott Brown presented “Ethanol’s Long Shadow” Nov. 8, 2011. What has ethanol done for you lately? What will ethanol do for you in the future? What won’t the coming changes for the ethanol blender’s tax do for you in the future? Look at the charts from Dr. Brown’s presentation
• What will the coming ethanol changes do for future corn prices? Here is a quick look at some of the FAPRI model’s predictions.
Expect feed cost to average recent price levels. Expect non-feed costs to increase slightly.
Every $.50 per bushel move for corn means a $.35 Milk Cost of Production increase or decrease.
Look at the following commodity charts to evaluate some past history you could be looking at in the next year. Hopefully you can turn expected volatility into margin management opportunities.
Ethanol prices reflect cost of corn. Blenders’ tax credit of $.45 per gallon that will cease on Dec. 31 has already been figured into the price which uses Jan. ’12 basis.
What’s your Christmas wish? The easy ones: Make life easier. Make the big problems manageable. Make the little problems solvable.
Think about the big ones. Peace on Earth, feeding the poor all over the world, providing shelter for those who do not have adequate housing.
Think about your friends. The neighbor that used to help you bale hay. The family down the road. The people you sit with at church.
Think about your family. Take time this holiday season to spend time with your spouse, the kids, with grandma and grandpa. One of your biggest assets is the support you get from your family.
My wish for you: “Happy Margin Management!”
Have a Happy Holiday!