Have You Ever Heard the Phrase

Transcription

1 Setting the Stage with Dairy Outlook Mark Stephenson Director of Dairy Policy Analysis Have You Ever Heard the Phrase! 3M Money Makes Milk! 5M More Money Makes More Milk! 7M Much More Money Makes Much More Milk! Or does it? Attributed to Don Kullmann of Prairie Farms Dairy Cooperative 1

2 We ve Never Been Here Before $26.00 All Milk Price $24.00 $22.00 $20.00 $18.00 $16.00 $14.00 $12.00 $10.00 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 $16.00 It s Also About Costs MPP Ration $14.00 $12.00 $10.00 $8.00 $6.00 $4.00 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 2

3 The Margin Looks Good for Now $16.00 IOFC Margin $14.00 $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 This Hurt! Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan Business Models Differ Average Daily Change in Production from Year Earlier CA WI Jan-00 Aug-00 Mar-01 Oct-01 May-02 Dec-02 Jul-03 Feb-04 Sep-04 Apr-05 Nov-05 Jun-06 Jan-07 Aug-07 Mar-08 Oct-08 May-09 Dec-09 Jul-10 Feb-11 Sep-11 Apr-12 Nov-12 Jun-13 Jan This Hurt!

4 Not Everyone Agrees, but it Looks Like Cycles to Us. Another Model Suggests Selected Variables Model started in 2011 and forecast forward. - Suggested about a $23 Class III peak in 2 nd half of Followed by slide to about $14 in 1 st half of $/cwt Date All Milk Price : Baseline 4

5 Ultimate Authority After review, it was determined that Bob put one through the uprights. How Do I Forecast?! I take input from our best known measurements! NASS, AMS, CME, BLS, NOAA, CNIEL, GDT, others! I assemble data into supply & utilization balance sheet! I consider what the mathematical models indicate! I listen to what others are saying! I assemble and weight into my own mental model 5

6 154 Rolling Average Daily Fluid Milk Sales Millions of Pounds ,000 Rolling Average Daily Yogurt Production 13,000 12,000 11, s of Pounds 10,000 9,000 8,000 7,000 6,000 5,000 4,

7 7 Per Capita Cheese Consumption Pounds Milk Equivalent Domestic Per Capita Consumption Pounds

8 Phil Plourd Makes a Case World Population Data: World Bank 8

9 Gross Domestic Product Data: World Bank, Current US Dollars Per Capita GDP with North America Data: World Bank, Current US Dollars 9

10 Per Capita GDP Data: World Bank, Current US Dollars What Can Prosperity Buy?! East Asia has had about a 5 times increase in per capita GDP over the last decade.! East Asia is no longer concerned about adequate calories! East Asia wants to upgrade the quality of its diet with more animal proteins.! Tom Hertel suggests that for the first time in history increases in prosperity are driving increased food demand more than increases than population. 10

11 Quarterly China Imports from U.S. Source: USDEC, GTIS World Weather Makes a Difference. 11

12 16 U.S. Dairy Trade as a Percentage of Milk Production Percent of Milk Production Exports Imports Demand Expectations! I expect domestic demand to be alright modest growth but nothing special 12

13 160 Consumer Confidence Consumer Confidence Present Expectations Demand Expectations! I expect domestic demand to be alright modest growth but nothing special! I expect U.S. export demand to expand, but probably not at the same rate as last year.! New Zealand and European Union have much improved weather for production.! China s demand is still growing but showing signs of slowing the pace.! Already see price decline on GDT.! U.S. product prices will have to align. 13

14 U.S. versus World Prices Average Daily Milk Per Cow Pounds per Cow per Day Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 14

15 Number of Cows 1000s of Cows Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 5.00% Percent Change in Milk Production % % % 1.00% 0.00% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec -1.00% 15

16 5/8/14 This is Still a Big Unknown Location of Dairy Cows One Dot = 1,500 Cows. Produced by Mark Stephenson University of Wisconsin 16

17 Uncertainties! Domestic Economy. Not all indicators are pointing in the same direction.! Export Sales. Could be stronger than I am forecasting.! Weather. Will the El Niño be enough.! Farm Bill. Signed into law on Feb 7. We understand the major pieces but there are still many details for USDA to decide before implementation. How will producers react? Observations! Farms have all the signal they need to tell them the market wants more milk.! They ve been slow to respond, but they are holding back cows from culling and there will soon be adequate heifers in the pipeline (even given beef prices).! They want to restore balance sheets quickly, but have been burned in the past. Western operations may not be as credit-worthy as in previous years.! I m forecasting milk prices to decline from this high point but still average 17

18 My Conclusions! We are at the peak of our milk price cycle now! We will decline significantly (All Milk price of low $19 by December)! The 2014 average milk price will still be $2.50 above 2013 average! 2015 average will look a lot more like 2013! 2016??? Questions? 18