After Dairy’s Good 2013 Year, What’s Next?
Jan 06, 2014
While reduced feed costs and good milk prices look promising, it's unclear how potentially higher milk production, feed quality issues and exports will play out.
It has been a very good end to a year filled with much emotion. Exceptionally high feed prices were present earlier in the year with increased anxiety as planting delays were prevalent. Corn prices over $7.00 per bushel, soybeans at $15.00 per bushel, and soybean meal over $450.00 per ton were being traded on the futures market in early last year.
The milk/feed ratio began 2013 at 1.57 with an income-over-feed cost of $7.22 per cwt. Dairy producers were struggling with tight margins and the potential for tighter margins if crops would not be planted or yields significantly impacted. Despite 8.3 million acres of prevented plantings, areas plagued with late planting and areas suffering from drought, genetics, better weather and a late fall was of great benefit to crops. The result was a corn price that was $2.56 per bushel lower at the end of 2013 compared to the beginning of the year. Soybean prices declined $1.30 per bushel with alfalfa hay prices down $30 per ton. What was initially feared as a disaster turned out favorably, improving profitability.
Milk prices improved with an All-Milk price in January 2013 moving higher to end the year at $21.80 despite record milk production. Demand has been good with exports significantly higher. The hottest dairy product of the year was nonfat dry milk, with very strong prices during the last half of the year. Grade A nonfat dry milk spot price increased from $1.73 per lb. on July 1, ending the year at $2.06. The AMS weekly average price closed the year 46 cents per lb. higher than the beginning of the year.
International demand has been strong and it appears as if that will continue. However, price may be at a level at which there is some buyer resistance while at the same time more product is showing up at the daily spot market. The average Class III price in 2013 was $17.99. The average Class IV price was $19.05 and the average All-Milk price was $20.00.
The market has not exhibited the usual decline into the end of the year. Cheese prices remain supported, pushing to price levels last seen in early November 2012. This is causing as much excitement as it is causing some concern. Excitement stems from the idea that exports will remain strong with milk supply not overwhelming the market. Concern stems from the possibility of a price void developing under the market. Once current buyer interest is filled, price weakness could send buyers to the sidelines. There have been a few reports from the Central region of the country of cheese orders slowing. This has not yet caused a back-up, but it’s something the industry is watching.
The beginning of 2014 looks very promising with reduced feed prices and good milk prices both actual and projected by the futures market. Impact of the relationship that generally exists between corn and milk has not yet been seen. Will this historical relationship become a greater factor as time moves on? That depends on the potential for increased milk production once most cows transition into a new lactation and feed quality issues are balanced. Exports will also play a large role in prices. We have another year before us, and along with it will come continued challenges and hopefully continued profitability.
- Global Dairy Trade auction on Jan. 7
- World Agricultural Supply and Demand report on Jan. 10
- California Class I price on Jan. 10
Robin Schmahl is a commodity broker and owner of AgDairy LLC, a full-service commodity brokerage firm located in Elkhart Lake, Wisconsin. He can be reached at 877-256-3253 or through their website at www.agdairy.com.
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