Dairy Market Update:May 2013

Dr. Craig ThomasMichigan State University Extension Dairy Farm Business Management & Milk

Marketing EducatorSanilac, Huron, Tuscola, St. Clair, Lapeer, Saginaw, Genesee, Macomb, Oakland, Washtenaw, Wayne,

& Monroe Counties

Benefactor ($200)Active Feed Co.

Major Sponsor ($75-$100)

Contributor ($50)Exchange State Bank

Eastern Michigan Bank

Thumb Veterinary ServicesCrop Production Services-Sandusky & Deckerville

2013 Sponsors

Dairy Farmers of America-Steve Steely

Graff Chevrolet/Buick, Inc.Sanilac Drain & Tile Co.

Secher Site Specific LLC GreenStone FCS

+ $1.87 Class III vs. Apr 2012 ($14.68, +$2.91 vs. Apr average)

April Milk Prices

+ $3.30 Class IV vs. Apr 2012 ($14.80, +$3.30 vs. Apr average)

$18.10

+$0.35

$17.59+$0.66

USDA Michigan Mailbox

Jan 2013: $19.81 up $0.77

+0.2% Nationally versus April 2012U.S. Production 2012 +2.1% vs. 2011

2013 +0.1% vs. 2012(’99-’12 ave. = +1.6%)

+0.3% Top 23 States versus April 2012

+0.2% Nationally versus April 2012U.S. Production 2012 +2.1% vs. 2011

2013 +0.1% vs. 2012(’99-’12 ave. = +1.6%)

Tenth time in past eleven months

below trend increase.

Record 200.324 billion lbs.for 2012!

+0.2% Nationally versus April 2012U.S. Production 2012 +2.1% vs. 2011

2013 +0.1% vs. 2012(’99-’12 ave. = +1.6%)

BUT…Q-1 2012 U.S. milk production was up

4.2% vs. 2011!

+0.2% Nationally versus April 2012U.S. Production 2012 +2.1% vs. 2011

2013 +0.1% vs. 2012(’99-’12 ave. = +1.6%)

Michigan +1.3%versus April 2012.

+0.2% Nationally versus April 2012U.S. Production 2012 +2.1% vs. 2011

2013 +0.1% vs. 2012(’99-’12 ave. = +1.6%)

Seqestration!Milk Production

ReportNo cow numbers!No milk per cow!

“administrative data” only

+0.2% Nationally versus April 2012U.S. Production 2012 +2.1% vs. 2011

2013 +0.1% vs. 2012(’99-’12 ave. = +1.6%)

M:F ratio <2.0 for 27of past 29 months.

+0.2% Nationally versus April 2012U.S. Production 2012 +2.1% vs. 2011

2013 +0.1% vs. 2012(’99-’12 ave. = +1.6%)

April Milk:Feed Price Ratio

All-Milk: $19.30 (+0.20)Corn: $6.67 (-$0.46)Soybeans: $14.20 (-$0.40)Alfalfa Hay: $215 (-$4.00)

+0.2% Nationally versus April 2012U.S. Production 2012 +2.1% vs. 2011

2013 +0.1% vs. 2012(’99-’12 ave. = +1.6%)

Feed costs up 3.8% vs.April 2012 ($11.92 to $12.38).

+0.2% Nationally versus April 2012U.S. Production 2012 +2.1% vs. 2011

2013 +0.1% vs. 2012(’99-’12 ave. = +1.6%)

USDA report on alfalfa hay and alfalfa hay mixtures:

U.S.: -34% vs. last May 1st

Hay stocks declined by 50% or more in nine states vs. last year

(MI, MN, NY, OH, VT, WI).Little indication 2013 crop will be large enough to replenish stocks.Hay acreage has fallen to second

lowest level on record.

+0.2% Nationally versus April 2012U.S. Production 2012 +2.1% vs. 2011

2013 +0.1% vs. 2012(’99-’12 ave. = +1.6%)

IOFC up 25.8% (+$1.74/cwt) vs.

April 2012 ($8.51 to $6.77).

+0.2% Nationally versus April 2012U.S. Production 2012 +2.1% vs. 2011

2013 +0.1% vs. 2012(’99-’12 ave. = +1.6%)

IOFC up 5.5%vs. March 2013 (+

$0.47).

+0.2% Nationally versus April 2012U.S. Production 2012 +2.1% vs. 2011

2013 +0.1% vs. 2012(’99-’12 ave. = +1.6%)

April all-milk price+$2.50/cwt vs. April 2012.

Above Trend For Apr

April: +11.9% vs. April 2012+1.1% vs. March

April +28,600 hd vs. April 2012

2012 +187,200 hd vs. 2011!YTD +56,200 hd (as of 4/30/13)

Jan (296.9) highest monthly slaughter number since 1986; year

of the whole-herd buyout.

Cull Rate AboveLong Term Average (29.0%)+4.1%

California:~100 dairy farms are closing their

doors permanently each year.

Cull Rate AboveLong Term Average (29.0%)+4.1%

U.S. cull cow prices down

1.5% vs. March 2012($82.90 vs. $84.20).

Cull Rate AboveLong Term Average (29.0%)+4.1%

What will thefuture hold?

Cull Rate AboveLong Term Average (29.0%)+4.1%Unusual circumstances moving

forward: Steers >$ vs. replacement heifers xbred calf likely more value than

purebred heifer Less sexed semen usage Holstein heifers being sold in lots

destined for the feedlot Strong beef prices continue to fuel

unprecedented dairy cull rates Beef industry will continue to pull dairy

to beef Thus, dairy herd will eventually shrink

and may be more difficult to grow in the future.

Going Strong…Better! No??!!2012 vs. 2011 +1.7%; 2013 vs. 2012

+0.8%(1996-12 average = +1.6%)

Cheese: 1996-12 average = +2.5%2012 vs. 2011 +1.2%; 2013 vs. 2012 +0.1%

Going Strong…Better! No??!!2012 vs. 2011 +1.7%; 2013 vs. 2012

+0.8%(1996-12 average = +1.6%)

Cheese: 1996-12 average = +2.5%2012 vs. 2011 +1.2%; 2013 vs. 2012 +0.1%

Total commercial disappearance set all-

time monthly record for Jan in Jan;

but down 0.7% in Feb vs. Feb 2012!

Going Strong…Better! No??!!2012 vs. 2011 +1.7%; 2013 vs. 2012

+0.8%(1996-12 average = +1.6%)

Cheese: 1996-12 average = +2.5%2012 vs. 2011 +1.2%; 2013 vs. 2012 +0.1%

2013 vs. 2012 (YTD Jan-Feb)American Cheese: +1.8%

(+2.3%)Other Cheese: +1.9% (+2.5%)Butter: +10.2% (+2.8%)NFDM: -18.7% (+5.3%)Fluid Milk: -4.4% (Feb)

Going Strong…Better! No??!!2012 vs. 2011 +1.7%; 2013 vs. 2012

+0.8%(1996-12 average = +1.6%)

Cheese: 1996-12 average = +2.5%2012 vs. 2011 +1.2%; 2013 vs. 2012 +0.1%

March fluid milk 38th

consecutive month ofdeclining sales versussame month last year.

American Cheese (+5.3% Apr vs. Apr 2012, +35.2 M lbs. vs. 5/1/12) Total Cheese (+4.5% Apr vs. Apr 2012, +48.1 M lbs. vs. 5/1/12)

5/28/13 Close = $1.7388May 07-12 Average = $1.5505

American Cheese (+5.3% Apr vs. Apr 2012, +35.2 M lbs. vs. 5/1/12) Total Cheese (+4.5% Apr vs. Apr 2012, +48.1 M lbs. vs. 5/1/12)

May 07-12 Average = $1.5505

Total Cheese InventoryAbove 1.0 billion pounds fifth

consecutive month!

5/28/13 Close = $1.7388

American Cheese (+5.3% Apr vs. Apr 2012, +35.2 M lbs. vs. 5/1/12) Total Cheese (+4.5% Apr vs. Apr 2012, +48.1 M lbs. vs. 5/1/12)

May 07-12 Average = $1.5505

Cheese InventoriesAll-time historical

highs!

5/28/13 Close = $1.7388

American Cheese (+5.3% Apr vs. Apr 2012, +35.2 M lbs. vs. 5/1/12) Total Cheese (+4.5% Apr vs. Apr 2012, +48.1 M lbs. vs. 5/1/12)

May 07-12 Average = $1.5505

2013 cheese production (Jan-Mar):

American cheese 2.7% (1.9%)Total cheese +1.7% (2.7%)

vs. Jan-Mar 2012.

5/28/13 Close = $1.7388

+22.2% versus Apr 2012Butter

May 07-12 Average = $1.5062

5/28/13 Close = $1.5450

+22.2% versus Apr 2012Butter

May 07-12 Average = $1.5062

Butter InventoryAll-time historical high!

5/28/13 Close = $1.5450

+22.2% versus Apr 2012Butter

May 07-12 Average = $1.5062

2013 butterproduction (Jan-Mar)

+4.4% (2.3%) vs. Jan-Mar 2012.

5/28/13 Close = $1.5450

Dairy Exports

Dairy trade surpluses 37 consecutive months!

FY-2013 (Oct-Mar): $918.1 M!

FY-2013: October-March

U.S. dairy exports equaled:CY-2011, 13.3%; CY-2012, 13.2%.

U.S. Dairy Trade Summary: March, 2013Trade Exports vs.

Current Exports Current Surplus/ Same MonthMonth Exports1 Last Year1 Imports1,2 Deficit1 Previous YearMar '13 $499.7 $484.0 $293.0 $206.7 3.2%Feb '13 $439.3 $437.0 $238.2 $201.1 0.5%Jan '13 $444.4 $425.5 $288.0 $156.4 4.4%Dec '12 $419.9 $430.0 $319.0 $100.9 -2.3%Nov '12 $400.1 $438.0 $299.0 $101.1 -8.7%Oct '12 $412.9 $411.0 $261.0 $151.9 0.5%FY-YTD3 $2,616.3 $2,625.5 $1,698.2 $918.1CY-YTD4 $1,383.4 $1,346.5 $819.2 $564.2U.S. Milk5 13.1%

March13.5% of total U.S. milk

solids production!Jan-Mar

13.1% (12.9%)

FY-2013: October-March

U.S. dairy exports equaled:CY-2011, 13.3%; CY-2012, 13.2%.

March24th time in past 25

months exports exceeded $400 million!

Dairy Exports

CY-2013 (Jan-Mar)Exports as a % of total U.S.

production:NFDM/SMP: 41% (44%)Cheese: 5.6% (5.3%)Butter: 5.9% (5.2%)Dry Whey: 46% (46%)Lactose: 72% (68%)

Dairy Exports

2011-2012One of every 8 tanker loads of raw milk was ultimately exported!

Dairy Exports2013 OutlookMilk production growth in Oceania,

EU, and U.S., unlikely to satisfy world dairy product demand.China expected to increase dairy imports by 14%.

New Zealand milk prdn down >16% in Mar; -2.3% in Feb.YTD up 4.8% vs. 2012; Australia -1.6% vs. 2012

(drought driven). “Offerings are tight…servicing existingaccounts on the books and having little extra for other demand.”

EU milk prdn down every month vs. last year since July 2012;weak 2013 spring flush.

Thus, no significant finished product stocksin EU or Oceania to buffer markets moving into

remainder of 2013.U.S. dairy product prices remain below international prices.

Higher international demand has softened demand(at least in the short term); however, look for

stronger prices in second half of 2013.

Dairy Exports

Big 5 Dairy ExportersUSDEC predicts will be down >1% in milk prdn for first half of 2013; a

shortfall of 1.6 M tons of milk (~3.5 B lbs).

Dairy Exports

USD Strengthening!

Dairy Exports

Tom SuberUSDEC president

“Global economic signs are starting tomove in a more positive direction,

demand and consumption will continuerising, and world prices are expected

to come more in line with U.S. prices.”

Dairy Exports

China“will be a key player in determining thehealth of global dairy markets given itsdemand for an ever-growing share of

dairy supplies.”+8.1% GDP growth in 2013 (+7.5% in 2011)>5% annual growth in dairy consumption!

Dairy Exports

World“…there are currently no significant

surplus stocks in the United States orthe EU to buffer markets. Consequentlyglobal economic and population growth

are expected to keep driving importdemand which could put upward pressureon dairy prices particularly towards the

second half of 2013.”

Dairy ExportsLong Term Outlook

Bright, but loaded with risk.

U.S. Dairy Export Council“The United States cannot absorb backinto the domestic market 13% of annual

milk solids produced in this country. Andas we produce more milk, most of it hasto go to international customers because

domestic consumption is growing slowly...”

Retail Food PricesMarch

Whole MilkCPI = +1.9%

Price: -$0.068/gal

CheeseCPI = -1.3%

Price: -$0.109/lb (p) +$0.077/lb (n)

ButterCPI = +1.0%

Price: NA

All-FoodCPI = +1.5%

DairyCPI = -0.5%

MPFECPI = +1.2%

Ice CreamCPI = +0.0%

Price: -$0.001/half gal.

Month/ Last Report CME Futures 2007-2012 Class III Difference vs. Difference Change Since Ave. Basis Potential MIYear 4/29/2013 5/28/2013 Average Class III Ave. (Last Report) Last Report 2005-12 "Mailbox"1

Jan '13 $18.14 $18.14 $15.26 $2.88 $2.88 $0.00 $1.66 $19.80Feb '13 $17.25 $17.25 $14.64 $2.61 $2.61 $0.00 $1.45 $18.70Mar '13 $16.97 $16.93 $15.24 $1.69 $1.73 ($0.04) $0.89 $17.82Apr '13 $17.26 $17.59 $14.86 $2.73 $2.40 $0.33 $1.01 $18.60May '13 $18.34 $18.51 $15.13 $3.39 $3.22 $0.17 $0.96 $19.47Jun '13 $18.95 $17.88 $16.46 $1.42 $2.49 ($1.07) $0.18 $18.06Jul '13 $19.16 $18.32 $16.90 $1.42 $2.26 ($0.84) $0.43 $18.75Aug '13 $19.13 $18.67 $17.16 $1.52 $1.98 ($0.46) $0.71 $19.38Sep '13 $19.10 $18.93 $17.13 $1.80 $1.97 ($0.17) $1.07 $20.00Oct '13 $18.90 $18.80 $17.43 $1.37 $1.47 ($0.10) $1.14 $19.94Nov '13 $18.63 $18.50 $17.36 $1.14 $1.27 ($0.13) $1.41 $19.91Dec '13 $18.26 $17.98 $16.82 $1.16 $1.44 ($0.28) $1.25 $19.23Jan '14 $17.87 $17.49 $15.26 $2.23 $2.61 ($0.38) $1.66 $19.15Feb '14 $17.65 $17.30 $14.64 $2.66 $3.01 ($0.35) $1.45 $18.75Mar '14 $17.35 $17.15 $15.24 $1.91 $2.11 ($0.20) $0.89 $18.04Apr '14 $17.30 $17.16 $14.86 $2.30 $2.44 ($0.14) $1.01 $18.17May '14 $17.10 $17.12 $15.13 $2.00 $1.98 $0.02 $0.96 $18.08June '14 $16.85 $17.07 $16.46 $0.61 $0.39 $0.22 $0.18 $17.25July '14 $16.02 $17.00 $16.90 $0.10 ($0.88) $0.98 $0.43 $17.43Aug '14 $16.02 $17.00 $17.16 ($0.15) ($1.14) $0.98 $0.71 $17.71Sep '14 $16.02 $17.00 $17.13 ($0.13) ($1.11) $0.98 $1.07 $18.07Oct '14 $16.25 $16.35 $17.43 ($1.08) ($1.18) $0.10 $1.14 $17.49Nov '14 $16.02 $16.25 $17.36 ($1.11) ($1.34) $0.23 $1.41 $17.66Dec '14 $16.02 $16.25 $16.82 ($0.57) ($0.80) $0.23 $1.25 $17.50Jan '15 $15.56 $15.57 $15.26 $0.31 $0.30 $0.01 $1.66 $17.23Feb '15 $15.51 $15.51 $14.64 $0.87 $0.87 $0.00 $1.45 $16.96Mar '15 $15.46 $15.24 $0.22 $0.89 $16.35Apr '15 $15.41 $14.86 $0.55 $1.01 $16.422013 $18.34 $18.13 $16.20 $1.93 $2.14 ($0.22) $1.01 $19.14

Next 12 mo. $18.35 $18.06 $16.20 $1.86 $2.19 ($0.33) $1.01 $19.072014 $16.71 $16.93 $16.20 $0.73 $0.51 $0.22 $1.01 $17.94

1Potential mailbox price for MI based on 2005-2012 basis (i.e., basis calculated as USDA MI mailbox price minus Class III price).

Class III

Current Class III futures prices are averaging +$1.93 (2013), +$1.86 (next 12 mos.), +$0.73 (2014) versus

the 2007-2013 averages.

Class III / Cheese

Next 12 mos: $18.55 ($18.06) (-$0.49)

4/29/13

2013: $18.13 ($18.52) (-$0.39)

2014: $16.93 ($16.85) (+$0.07)

Class III

Current Class III futures prices are averaging +$1.93 (2013), +$1.86 (next 12 mos.), +$0.73 (2014) versus

the 2007-2013 averages.

Where’s the Market Headed?Cheese prices. 5/29/13

Ave.$1.7388

4/29/13$1.7663 block/barrel

cheese price.

Where’s the Market Headed?Cheese prices. 5/29/13

Ave.$1.7388

Decrease of$0.0275

Where’s the Market Headed?

Where’s the Market Headed?

Where’s the Market Headed?USDA Forecast

May

Milk production:2013

201.8 B lbs. +0.7%Milk consumption:195.0 B lbs. +0.9%

2013 prices:Class III: $17.80-$18.30 (-5¢)

Class IV: $18.20-$18.80 (+10¢)

All-Milk: $19.5-$20.00 (+5¢)Cheese: $1.745-$1.795

(+1¢)Butter: $1.570-$1.650 (+1¢)

NFDM: $1.590-$1.630 (+0.5¢)

Dry whey: $0.580-$0.610 (-2.5¢)

PricesSpring flush ending soon; major heat in 2013?

Domestic consumption weak, exports remain strong;push on to produce more milk, esp. w/lower feed $;will U.S. dairy herd shrink? Will higher prices and

stronger USD limit upside?Cheese: flat then up? $2.00 by mid-summer?Butter: flat then up? $2.00 by mid-summer?

Class III & IV: flat near term; ave. near or aboveUSDA top?

Will cow numbers fall;international demand remain strong?

Where’s the Market Headed?

LGM-DairyFY-2014 budget calls for increase in

LGM subsidies from $20 M to $100 M.

DSA likely component of newFarm Bill…but when?

Where’s the Market Headed?

Long Range Weather Forecast

Jun-Jul-Aug Temperature

Long Range Weather Forecast

Aug-Sep-Oct Temperature

Long Range Weather Forecast

Jun-Jul-Aug Precipitation

Long Range Weather Forecast

Aug-Sep-Oct Precipitation

“Prediction is verydifficult, especially if it is about the future.”

-Neils Bohr

Where’s the Market Headed?

Where’s the Market Headed?

“It doesn’t matter howsmart you are unlessyou stop and think.”

-Thomas Sowell

Craig ThomasWeb Site

www.msu.edu/~thomasc

NewsWeb Site

msue.anr.msu.edu

AgricultureDairy

2013Ag Market Updates

Live over the Net!Send me your e-mail address to receive advance notification of live Ag Market

Update webinars.

Month Location Day DateFebruary Sandusky1,2,3 Tuesday 2/26/2013

April Sandusky1,2,3 Tuesday 4/30/2013

June Sandusky1,2,3 Tuesday 6/25/2013

August Sandusky1,2,3 Tuesday 8/27/2013

October Sandusky1,2,3 Tuesday 10/29/2013

December Sandusky1,2,3 Tuesday 12/17/2013

Craig Thomasthomasc@anr.msu.edu

http://breeze.msu.edu/craigthomas

The End