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August 2008 Archive for Dairy Talk

RSS By: Jim Dickrell, Dairy Today

Jim Dickrell is the editor of Dairy Today and is based in Monticello, Minn.

Dairy feed costs coming down

Aug 20, 2008

By Jim Dickrell, Dairy Today editor

You could almost hear a collective sigh of relief across dairy country when USDA released its August 12, potentially bin-bursting crop report.

The biggest surprise was the projected corn yield, at 155 bu./acre, bringing in a total crop of 12.3 billion bushels. If realized, this would be the second largest corn crop in U.S. history—and welcome relief for every dairy producer who buys corn to power milk production. (Follow this link to USDA's Feed Outlook report.)

Whether such a crop actually reaches the bin is entirely dependent on the weather between now and Thanksgiving. As one grower told AgDay TV last week, he’ll need a frost-free season at least that long to get his crop to mature. “Weather will have the final say on this crop,” adds my colleague, Chip Flory, editor of Pro Farmer Newsletter.

As I’ve driven nearly 2,500 miles in the last month  across the Midwest, crops look two to three weeks behind normal. But given my wind shield surveys of Wisconsin, Minnesota, Iowa and Missouri, USDA could be right.

The corn in these four states was a deep green, though uneven in some fields. Soybeans were coming on strong across the region. Third-crop alfalfa—at least in Wisconsin last week—was picture perfect.

And feed prices are starting to reflect the potential bin buster. One Wisconsin County Extension Specialist told me corn had dropped to $4.25 at an elevator in Outagamie County, and he expected it to drop below $4 by harvest. Still, $5.15/bu. corn that was more common in eastern Wisconsin is a far cry from the $7 and $8 at the worst of the price run-ups in June.

An Iowa Extension dairy budget, updated monthly by Robert  Tigner, showed some positive numbers already last month with corn dropping to $5.28/bu. and protein at $420/ton. Of course, farmgate milk prices in Northeast Iowa were also at $19.43/cwt.

At the July feed costs, Tigner figured a break-even cost of $17.93/cwt milk price for a 20,000 lb. herd and $16.70 for a 24,000 lb. herd. If feed prices continue to drop, those should fall further—and might stay ahead of declining Class III prices.

As I talk to producers and their consultants, the question most commonly asked is whether to lock in feed prices. With weather still a risk to fill ears and pods the next 30 days, and more risk of getting the crop out of the field, does it make sense to lock now?

I do know this: Like the Iowa budgets, you need to know if current feed prices and current milk prices leave you in the black. Locking in one side of the equation and not the other is just bad algebra.

The Dairy Talk column is part of the Dairy Today eUpdate newsletter, which is delivered to subscribers biweekly and includes dairy market analysis, dairy nutrition information as well as the latest dairy headline news. Click here to subscribe.



Trade talk failures and your milk check

Aug 07, 2008

By Jim Dickrell, editor Dairy Today

Perhaps the most under-reported story of the week last week was the collapse of the Doha Round of the World Trade Organization in Geneva.

After almost seven years of negotiations, talks fell apart over arcane “safeguards” for advanced developing countries like India and China. If the U.S. and other pro-trade countries would have acquiesced on this point, China might have been free to raise tariffs when it felt threatened. (China has already spent more than $100 million for U.S. dairy imports January through May of this year.) For a more complete picture of the trade talks’ collapse, follow this link to the WTO Web site.

Most folks are saying “no agreement is better than a poor agreement.”  Well, yes….

The problem for U.S. dairy producers is that they are fast becoming players on world markets. Some 9.5% of U.S. milk solids were exported in 2007. And through the first quarter of 2008, exports surged to 10.7%.

Through May, U.S. dairy exports totaled $1.78 billion, an astounding 81% increase over the same period in 2007. Even cheese exports, at near-record domestic prices, jumped 49% through May. And through March, butter sales had already surpassed exports for all of 2007 by 12%.

This has been a huge boon to your milk check. With milk production climbing 3% and domestic demand inching up 1% at best (with fluid sales actually declining), export sales are “very critical,” says Scott Brown, an economist with the University of Missouri’s Food and Agricultural Policy Research Institute.

“Without exports, we would be looking at a much more bleak financial outlook given what is happening with feed prices,” he says.

The good news is that dairy exports won’t start piling up on the docks at the Port of Long Beach simply because the WTO talks collapsed. Export demand for U.S. dairy products is still strong; the value of the dollar is still weak on world currency markets.

But long term, there could be trouble. The United States needs to ensure export subsidies are eliminated and U.S. dairy producers maintain and gain market access, says Margaret Speich,VP of communications with the U.S. Dairy Export Council.

“The European Union (EU) has only suspended its export subsidies on dairy. They have not eliminated them,” she says. “There could be backsliding.”

Out-right demand for U.S. dairy products has been building, thanks to years of effort by USDEC. But the suspension of those EU export subsidies allowed world prices to rise to the point where U.S. dairy products are now globally competitive. Without that price competitiveness, all the demand in the world won’t move product.

Prospects for re-starting the trade talks are null and void in the near term. The United States must first pick a new president, for starters. Who ever occupies the Oval Office in 2009 will set the tone for how aggressive our trade negotiators are in revisiting Doha.

“It really depends on the next administration and its appetite to try again,” says Shawna Morris, director of government relations and trade for the National Milk Producers Federation. It could be mid-2009, maybe even 2010, before talks resume--if they resume, she says.

In the meantime, U.S. dairy producers will have to cross their fingers that world demand remains strong, the dollars remains weak—and that European farmers don’t wake up to the fact that the world wants more dairy. That’s a lot to hope for.

The Dairy Talk column is part of the Dairy Today eUpdate newsletter, which is delivered to subscribers biweekly and includes dairy market analysis, dairy nutrition information as well as the latest dairy headline news. 
Click here to subscribe.



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