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MilkweedDairy’s best information and insightsIssue No. 408 • July 2013

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Serious New Zealand Drought Projected for 2013’s Second Half

Prevailing “logic” in the U.S. dairy industry

runs something like this:

Since April, precipitation has returned to New

Zealand, helping break that dairy island nation’s

severe January-March 2013 drought. Therefore,

milk will gush, as usual, from Kiwi dairy cattle again

this late summer and fall – restoring available global

dairy commodity supplies and knocking the peak off

seemingly high global dairy commodity prices.

That “logic” continues: once “normal” milk

production patterns are restored in New Zealand,

global dairy commodity prices will settle down and

any U.S. opportunities to partake of higher-priced

global dairy markets should be viewed skeptically.

Trouble with that logic: the respected Global

Drought Monitor, which is issued by University Col-

lege (London, England) and updated monthly, projects

an exceedingly dry second half of 2013 for New

Zealand. In fact, the June 16, 2013 updated Global

Drought Monitor’s three-month forward projection (for

September 2013) shows the whole &%#@! country of

New Zealand under drought – most of that drought pro-

jection being “Extreme” and “Exceptional”.

During the last quarter of 2013, the Global

Drought Monitor issued on June 16, 2013 projects

drought conditions easing a bit – particularly on New

Zealand’s South Island. But virtually all of New

Zealand is still locked in the grips of varying degrees

of drought through year’s end.

During 2013’s first quarter, severe drought ham-

mered much of New Zealand. Fortunately for the

Kiwi dairy industry, that drought hit during the declin-

ing phase of that nation’s pasture-based milk produc-

tion season. The January-March 2013 drought was

labeled the worst in about 70 years. New Zealand

dairy producers store little forage – their industry is

basically paddock to muzzle. New Zealand’s dairy

producers “managed” a wise drought response: drying

off some milk cows earlier than normal to reduce feed

requirements, and culling heavily. Needed rainfall in

April helped restore some pastures. Concerns remain

about the body condition and reproductive efficiency

of New Zealand’s dairy animals, following the severe

first-quarter 2013 drought.

New Zealand dairy exporters ended their milk

production season with nearly zero inventories of dairy

commodities. Global dairy commodity markets

responded in a big way to the Kiwi’s empty cupboards.

Milk production restarts in August in New

Zealand and surges rapidly into October. October is

New Zealand’s historic peak milk production month,

as fresh cows make milk utilizing newly-grown pas-

tures. October milk production in New Zealand is

nearly 2.7 times greater than August’s volume.

That’s how New Zealand’s dairy industry works, or

at least is supposed to work.

BUT … if the Global Drought Monitor’s pro-

jections for severe drought in New Zealand in the

second half of 2013 are anywhere near accurate, the

global dairy industry will again be thrown into chaos

and panic. That prevailing “logic” about normal pas-

ture conditions in New Zealand restoring normal

milk flow to global dairy buyers … could be headed

for the dumpster.

Two to five months hence? Let’s just wait and

see what combination of precipitation and tempera-

tures Mother Nature vests upon New Zealand in the

coming several months. If New Zealand does in fact

suffer any serious drought problems in coming

months, the world’s dairy buyers will be forced to

turn, in great part, to the United States. And in this

nation, Mother Nature has been darn tough on crops

(especially vital forages) here in 2013, following

2012’s drought.

Unprecedented volatility, unprecedented

scarcity could lie directly ahead for the U.S. and

global dairy industries. Watch the weather, “Down

Under” and here in the U.S. Don’t look now … but

the Global Drought Monitor projects serious dry

conditions for much of the agricultural U.S. (except

for the Deep South and New York/New England)

during the second half of 2013.

Sources tell The Milkweed that anticipated

dairy commodity production for much of New

Zealand and Australia is already sold out, into

November. In other words, marketers “down under”

have sold dairy commodities for the early fall

months, anticipating pretty much normal milk flows.

by Pete Hardin

I recently completed my annual 2,300-mile

tour of the central U.S. corn and soybean country in

mid-June, observing crop, forage, and livestock con-

ditions in several key states. My observations from

this year’s trip – from southern Wisconsin west

through Iowa and Nebraska to Colorado, and back

through South Dakota and southern Minnesota –

were shocking.

Even more shocking, however, are USDA’s

recent weekly Crop Progress reports – for their seem-

ing lack of credibility. While I (and many others) tend

to view these documents with some skepticism, the

most recent weekly reports bear almost no resem-

blance to the reality of actual crop conditions on the

ground in key areas of the states I visited. The July 8,

2013 report suggests that between 58% to 76% of the

corn crop is in “good” to “excellent” condition in the

states I visited just three weeks prior. USDA’s soy-

bean projections are similarly delusional.

The big dilemma: Should I believe my eyes, or

USDA? There’s a lot riding on official U.S. Govern-

ment crop estimates, which have the power to stam-

pede volatile commodity markets (mostly for the

benefit of global grain traders). The stakes are par-

ticularly high this year – for farmers and consumers

alike – following the great 2012 drought that deplet-

ed U.S. and global grain stocks. So, it’s important

that USDA accurately analyze current crops’ status,

or at least come reasonably close. That said, recent

crop reports coming out of Washington, D.C.

increasingly defy belief.

Common sense suggests that this spring’s wet,

cold weather over much of the Corn Belt means

potentially big trouble for corn and soybean yields.

Recent crop reports suggest that the USDA bureau-

crats don’t seem to get that fact. Even farmers lucky

enough to get their crops in the ground in May or

early June faced poor stands of yellowish-green corn

Miriam Millam smiles while milking thisNormande-cross cow at French Cow Dairy nearMilaca, Minnesota. Miriam and husband Craigrebuilt following a devasting fire in April 2012.The Millams credit the Normande-cross dairyherd for their love of dairying and bouncing backfrom the fire. See related articles, pages 8-9.

1 MonthMid-July 2013

3 MonthMid-September 2013

6 MonthMid-December2013

Source: http://drought.mssl.ucl.ac.uk

– June 16, 2013

All Wet? USDA’s July 9 Crop Report Ignores Grim Corn Belt Weather Realities

by Jim Eichstadt

Continued on page 2

The Milkweed is published monthly by TheMilkweed, Inc., W717 Amidon Rd., Brooklyn, WI53521. Periodical postage paid at Brooklyn, WI,and additional mailing offices. Postmaster:Send address changes to The Milkweed, P.O.Box 10, Brooklyn, WI 53521-0010.

The Milkweed is a monthly dairy market-ing report for dairy farmers and other peoplewith an interest in the dairy industry. PeterLouis Hardin is the editor and publisher.

All material is copyrighted 2013 by TheMilkweed, Inc. Written permission is requiredbefore articles can be reprinted.

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The Milkweed

ISSN: 1533-6026

2 — The Milkweed • July 2013

PRICES PER POUND April ’13 May ’13 June ’13May-June

Difference

Butter $1.6766 $1.6483 $1.5422 -10.61¢Nonfat Dry Milk 1.5312 1.6374 1.6878 +5.04¢Cheddar Cheese 1.7310 1.8274 1.7810 -4.64¢

Dry Whey 0.5741 0.5765 0.5738 -0.27¢

that threaten the size of the 2013 harvest. Even

worse off were those who couldn’t get their crops

planted or saw their fields drowned out by heavy

rains that continued through late June. (Madison,

Wisconsin, for example, received about one year’s

worth of precipitation in the first six months of 2013.

Other areas of Wisconsin had it even worse: excess

rainfall along with severe winterkill of alfalfa fields

and other serious weather woes.)

Admittedly, growing conditions improved

greatly in early July. Temperatures have returned to

their seasonal highs and the heavy rains have let up

a bit. The corn crop looks great in some areas – e.g.,some fields were more than waist-high by the fourth

of July in southern Wisconsin. But the corn crop

across the region west of Wisconsin was so consis-

tently poor just three weeks ago that the July 8, 2013

Crop Progress report deserves closer inspection on a

state-by-state basis, particularly Iowa.

Iowa is the top U.S. corn-producing state in the

very heart of the Corn Belt. According to USDA,

Iowa produced 2.153 billion bushels of corn in 2010,

equal to 17.3% of total U.S. corn production of 12.447

billion bushels that year. (Note: 2010 was the most

recent “normal” crop year in the Corn Belt.) The July

8, 2013 Crop Progress report rates 44% of Iowa’s corn

crop in “good” condition and 14% in “excellent” con-

dition. The rest of Iowa’s crop is rated 30% is report-

ed as “fair,” 9% “poor” and 3% “very poor.”

In contrast to USDA’s combined rating of 58%

“Good” to “Excellent,” I observed that most of the

corn crop across most of northern Iowa – along U.S.

Highway 20 between Dubuque and Interstate 35

north of Ames, was poor to very poor … to non-exis-

tent … on June 14. Many fields appeared unplanted,

had water standing, and were deeply rutted by tractor

tracks from failed attempts to till or plant. If corn had

been planted, it either hadn’t emerged, was too small

to be seen, or was under water. There were no

emerged soybeans to seen. Overall, corn and soybean

crops in northern Iowa were much farther along and

in much better condition at the same time in 2012,

when severe drought conditions were setting in.

Near Grundy Center, Iowa, I observed one of the

better corn fields in northern Iowa. It showed all the

symptoms of the cold, wet spring: the stand was poor,

the plants were short, uneven, and had a sickly yel-

low-green color common to the leaching of water-sol-

uble nutrients from the soil (see photo, page 16).

Large areas had been under water. This field – in very

poor condition – was typical of corn I observed across

northern Iowa, in the heart of the Corn Belt.

Crop conditions didn’t change much going

south on Interstate 35 later that day as the cold rains

resumed. A blindly heavy thunderstorm made obser-

vation impossible (and further deteriorated crop con-

ditions) south of Ames to Des Moines and nearly an

hour’s drive west on Interstate 80. As the rains let

up, the corn in western Iowa appeared to be in better

condition, but nowhere near normal.

These weren’t just my observations. Other local

contacts confirmed that crop conditions across a

broad swath of northern Iowa were similarly dire a

week or two later. One source reported that farmers in

northwestern Iowa had just finished planting corn in

late June, and were finally starting on soybeans, when

the heavy rains resumed and planting came to a dead

halt. Based on what I – and others on the ground –

have observed first hand, it is very difficult to lend

credibility to USDA’s July 8, 2013 Crop Progress

report for the condition of Iowa’s corn crop.

Eastern Nebraska also had excessive mois-

ture. Heavy thunderstorms continued from Omaha to

Lincoln, stopping Interstate 80 traffic at times. Con-

ditions began to improve closer to Grand Island.

There was much evidence of excess rainfall far into

western Nebraska. Compared to Iowa, Nebraska’s

corn crop was more mature – 8 to 10 inches tall in

the fields I observed – but lacked the dark green

color and height typical of normal crop conditions

for mid to late June. Even so, USDA’s July 8 report

rating 75% of Nebraska’s corn as “good to excel-

lent” is a real stretch that defies credibility.

Surprisingly, irrigated corn fields in northeast-

ern Colorado – a semi-arid state that remains stuck in

last year’s heat and drought – actually looked better

than anything I saw in Iowa. That’s not saying much,

because almost all non-irrigated cropland and grass-

land I observed in Colorado in mid-June was brown.

In western Nebraska, irrigated corn fields near

Gering did not appear to be as tall or vigorous as the

irrigated corn in northeastern Colorado. Apparent-

ly, the growth-promoting high temperatures baking

Colorado did not extend too far into Nebraska.

Crop conditions in eastern South Dakota

were similarly affected by the wet, cold spring. Corn

stands were uneven, with areas of standing water.

Corn plants were often yellow-green and slow to get

started. Soybean plantings were late. Additional

damage was inflicted June 21 by a major storm front

that brought heavy rains, hail, tornados, and damag-

ing straight-line winds that flattened or otherwise

damaged farm buildings and toppled some center-

pivot irrigation rigs. More storms in late June did

additional damage to corn and soybean fields.

Northeastern South Dakota is reported to be par-

ticularly waterlogged.

While South Dakota is not among the top five

corn-producing states, its contributions have become

increasingly important in the past two years as U.S.

and global corn inventories shrink. (USDA ranked

South Dakota seventh nationally in 2010, with 570

million bushels of corn production.)

The other real shocker I observed was southern

Minnesota on June 22. Corn and soybeans in this part

of the state had gotten a much better start than crops

south of the border in Iowa. Much of the corn was

taller and darker green prior to very heavy rains in

mid-June that left deep water standing in fields, mile

after mile after mile, as far as the eye could see in all

directions. The effects of the deluge extended along

Interstate 90 from western Minnesota all the way east

beyond Albert Lea. Corn and soybean fields near Wor-

thington, Jackson, Blue Earth, and beyond had large

areas of standing water between the rows – or sub-

merging the rows completely – across entire fields. It

is by far the worst flooding I can recall seeing in more

than 30 years of traveling this same route!

Minnesota is the fourth largest corn-producing

state, with 1.292 billion bushels of corn equal to

10.4% of total U.S. corn production in 2010, accord-

ing to USDA. Despite the extensive flooding of corn

fields in southern Minnesota, the most productive

part of the state, USDA’s July 8, 2013 Crop Progress

report rates 63% of Minnesota’s corn crop as

“Good” (54%) to “Excellent” (9%). Incredible!

(Pete Hardin, editor and publisher of The Milk-weed, elsewhere in this issue reports finding similar,

if only slightly less severe, crop conditions in his

more recent travels in other parts of Minnesota.)

About the only good news I came away with

from this year’s trip concerns grass conditions. All

the rainfall has greatly improved rangeland and pas-

ture conditions in western Nebraska and South

Dakota. A livestock auctioneer at Martin, South

Dakota said the grass situation has made a dramatic

turn for the better in the past six months. This devel-

opment will help struggling beef producers across

the region replenish their herds and rebuild hay sup-

plies depleted by severe drought in 2012. Improved

grass hay supplies for beef cattle may also reduce

some potential demand for scarce, expensive sup-

plies of alfalfa hay needed by dairy producers.

Jim Eichstadt of DeForest, Wisconsin is adairy trade consultant whose industry experienceincludes more than two decades in communicationsand senior management positions at major Midwestdairy and farm organizations and involvement in keytrade policy events affecting U.S. agriculture.

USDA’s benchmark prices for farm milk reg-

ulated by the federal order system declined in June

2013 from the prior month’s levels. Cheese milk

(Class III) fell by $.50 per hundredweight And

Class IV milk (processed into butter-powder) fell

only by one cent per hundredweight.

Those price declines correlated with dairy

commodity cash market trends in the industry from

late May through late June. Cash markets for Ched-

dar have been eroding, due to significant invento-

ries. Same for the butter component in USDA’s

commodity-based pricing formulae.

June 2013’s Class III price lost half a dollar,

compared to the May cheese milk value. On a

regional basis, abundant milk output continues in

the Upper Midwest, where manufacturing plants

tend to produce cheese. But in California, for

example, where milk production (and component

levels) are struggling, butter-powder plants absorb

most of the manufacturing milk. Thus, when

viewed nationally, cheese is piling up and supplies

of nonfat dry milk are tightening.

For the June 2013 Class III/IV price calcula-

tions, USDA economists used the following aver-

age prices:

Butterfat price ..........................$1.6599/lb.

Nonfat Solids price ..................$1.5048/lb.

Protein price ............................$3.3455/lb.

Other Solids price ....................$0.3859/lb.

In The Milkweed’s quick analysis, unless some

dramatic upwards price movement happens by July

20 (or so) in Cheddar and butter prices at CME, the

July 2013 Class III/IV prices will probably fall

below June 2013’s price benchmarks.

USDA’s July 9 Crop Report Ignores Grim Corn Belt Weather Realities, con’t

June 2013 Class III Price $18.02 – Class IV Price $18.88

Continued from page 1

See photographs from

Jim Eichstadt’s trip on page 16.

Volatile corn markets behaved very

peculiarly as The Milkweed went to press this

month. The July 11, 2013 cash price for #2

yellow corn central Illinois was $7.06 per

bushel (compared to $7.62 one year ago). As

of July 12, July corn futures (per bushel)

reached $7.25, while several contracts for

later delivery through next March fluctuated

in the low- to mid-$5 range, dropping 7 to 9

cents during the morning, as The Milkweedwent to press.

July ’13: Corn Markets Go Crazyas Weather Uncertainty Intensifies

NEED FREE EXTRA COPIES?? 608-455-2400

June Tour of Central & Western Corn Belt Shows “Dire” Conditions

GRUNDY CENTER, IOWA – JUNE 14This thin stand of yellow, stunted corn was taken June 14

near Grundy Center, Iowa, in the heart of the Corn Belt. Pooras it is, this was one of the better-looking fields in an areafamous for corn production. Many corn fields in north-centralIowa had large areas of standing water surrounded by yel-lowish corn or no corn at all. Local sources reported thatthere were few, if any, soybean fields were planted in thearea. Heavy rains threatened that afternoon. Many corn andsoybean fields between Dubuque and Interstate 35 north ofAmes didn’t appear to be planted yet, or hadn’t emerged dueto the cold, wet weather that persisted into mid June.

WOOD RIVER, NEBRASKA – JUNE 15This corn field near Interstate 80 west of Grand Island,

Nebraska was one of the better-looking fields in area as ofJune 15. While plants in this field were notably taller and thick-er than cornfields in Iowa, they still had a distinctly unhealthyyellow, stunted appearance compared to the thick, dark-green stands seen in normal years. This area of the statemissed out on the worst of the heavy thunderstorms thatbrought interstate traffic to near-standstill in central Iowa andeastern Nebraska the evening of June 14.

AULT, COLORADO – JUNE 17This field of corn along Highway 14 near Ault, Colorado

looked green and healthy, but only because of regular irriga-tion by the center pivot rig in the background. Unlike much ofthe Corn Belt, this area north of Greeley has been experi-encing more of the intense heat and drought of 2012. Manyarea farmers have seen their irrigation water suppliesreduced this year due to ash contamination of area reservoirsby runoff from 2012’s massive wildfires in the Poudre Riverbasin west of Fort Collins, Colorado.

BEADLE COUNTY, SOUTH DAKOTA – JUNE 21This corn field east of Huron, South Dakota shows the

effects of severe weather that ripped through a wide swath ofeastern South Dakota the afternoon of June 21. The stormsystem produced heavy rains, hail, tornados and straight-linewinds that toppled grain bins, barns, and irrigation rigs (likethe one above). Like much of the region, this spring’s cold,wet weather have delayed or prevented plantings of crops ineastern South Dakota. Crops showed the effects of excessiverain and were behind schedule. Even worse, local sourcesreport that scattered hailstorms in late June forced thereplanting – or abandonment – of some soybean fields.

JACKSON COUNTY, MINNESOTA – JUNE 22This corn field pictured east of Jackson, Minnesota also

is typical: standing water everywhere in fields that otherwiselooked close to normal despite the cold, wet spring that setback corn and soybean crops elsewhere in the Upper Mid-west. Heavy rains in mid June changed the Minnesota cropoutlook in a major way, resulting in the worst flooding seen indecades.

FARIBAULT COUNTY, MINNESOTA – JUNE 22Farther east, this field near Blue Earth, Minnesota

showed evidence of the standing water common acrosssouthern Minnesota. This scene was typical of mile after mileof flooded field conditions seen June 22 extending eastbeyond Albert Lea, Minnesota.

16 — The Milkweed • July 2013

Photos and commentary by Jim Eichstadt.

See accompanying story on page 1.