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August 2013 Archive for Dairy Talk

RSS By: Jim Dickrell, Dairy Today

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

Cheap(er) Corn Means Cheap(er) Milk

Aug 23, 2013

Start thinking about 2014 risk management scenarios now. Once the corn crop is in the bin, it will be too late.

If you were following ProFarmer’s 2013 Crop Tour across the Corn Belt last week, you know that corn yields are projecting far better than last year’s drought-shriveled disaster.

From Ohio to Nebraska, yields were sometimes 50 bu. per acre better than last year, and anywhere from 5% to 35% better than the three-year average. Granted, 2012 was included in that three-year average, but no state on this year’s tour was averaging less than 155 bu. per acre projected yield.

My windshield surveys of both Minnesota and Wisconsin over the last 10 days suggest similarly good yields here in the Upper Midwest. Sure, there are pockets of drought-stressed, leaf-curled corn on lighter, sandier soils. And a dearth of rain across most of the Midwest this month means that the crop is not yet made.

But given our modern, high-powered hybrids, increased corn plantings of 224,000 acres (0.2%) and far better moisture than last year, it’s a pretty safe bet that more corn is on its way to a silver-steeled, corrugated bin near you. To state the obvious, that’s welcome news after years of $6 corn.

But more, cheaper corn likely means more, cheaper milk. For 2014, USDA is predicting U.S. dairy cows will pump out 204.5 billion pounds, up 1.2% over this year.

"I think the increase could easily be twice that large," says Jerry Dryer, editor of Dairy & Food Market Analyst newsletter and Dairy Today’s Market Watch Diary contributor. "If corn and bean crops are as large as currently forecast, the milk supply will surge, fueled by the lower feed prices and vastly improved margins-over-feed costs."

Granted, year-to-date milk is up a paltry 93 million pounds (0.07%) over last year. But any increases brought on by cheaper feed will only add to already plentiful warehoused product. "Inventories are atypically high, with butter stocks to the point of being ridiculous," says Dryer.

Lackluster fluid milk sales—June fluid sales were down a disturbing 6% from a year ago-- aren’t helping the cause. But schools have or will start soon, which should bolster fall milk sales.

In any event, futures markets are already anticipating more milk. Last week, 2014 Class III contracts struggled to climb above $17. Still, depending on your basis, that could mean mailbox prices of $18 to $19 next year. But that’s at current conditions—both on the supply and demand side. If Jerry Dryer is right and we see a 2.5% surge in production, it’s likely even these prices won’t hold.

This is a long way to saying that you need to be thinking 2014 risk management scenarios now. When the corn crop is in the bin, it will be too late.

If you don’t want to lock in futures or over-the-counter contracts with your milk handler, at least consider put options or fence strategies to protect your milk price. At the very least, talk to your broker to discuss options. Do it this week. December will be too late.

You can read all of the yield projections from ProFarmer’s 2013 Crop Tour here.

You can read the July milk production report here

New Zealand Dairy Health Scare Has Lessons for U.S.

Aug 09, 2013

We’re just one food sanitation slip-up away from being in the same boat as New Zealand.

Cows, like the folks who milk them, don’t take Sundays off. But the milk they produce each Sabbath is destined for off-shore markets. That creates tremendous opportunity—and heightened risks.

Think about it. The United States is now exporting 13% to 14% of its milk production, which means every seventh day’s production must be processed into products that the world wants.

When I woke up on Sunday morning, Aug. 4, I saw the first report of New Zealand’s milk safety problem. Clostridium botulinum had been detected in some of New Zealand’s whey protein concentrate that had been shipped to China. The first reports that morning were that China was banning all New Zealand dairy products. Russia, Hong Kong and Sri Lanka quickly followed suit.

Markets reacted quickly. Fonterra's Global Dairy Trade Price Index declined 2.4%. And because New Zealand’s $9 billion of dairy exports account for roughly a fourth of the country’s export earnings, even the New Zealand dollar dipped slightly.

So the time-faded bumper sticker, "Think global, act local," could not be more true. Just the day before the New Zealand dairy safety crisis broke, I had toured the Upstate Niagara Cooperative yogurt and cottage cheese plant in West Seneca, N.Y., just down the freeway from Buffalo.

Jay Jaskiewicz, plant manager, led the tour. When asked what his greatest concerns were managing the plant, he immediately responded: "Employee and food safety. You can always make up a day of slow production. But the things that keep you up at night—the things you lose sleep over--are employee safety and product contamination."

During our tour, both of those concerns were in evidence everywhere. Safety reminders were ubiquitous; food safety testing and record keeping were constant. Batch samples are kept for months to be able to track a problem should, heaven forbid, it ever occur.

I presume such safety measures are in place in every dairy plant in America. It’s a certainty they are in New Zealand plants as well—which has a stellar, global reputation for quality dairy products made to exacting customer specifications. And yet a problem occurred.

One can only hope dairy plant managers lost a little sleep last week over this incident. And more importantly, they hopefully redoubled efforts to enforce sanitation protocols to keep products safe.

Dairy farmers need to heed this warning as well. We’re just one food sanitation slip-up away from being in the same boat as New Zealand. It’s another reason why managing price risk is more important now than ever. In our 24/7 globally-connected world, market traders don’t take Sundays off either.

You can read more on the New Zealand dairy safety crisis here and here

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