Dairy Outlook - November, 2015



By Jim Dunn
Professor of Agricultural Economics
Penn State University
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Market Psychology
The butter market has risen steadily since early October, now some 50¢/lb. over its value then to $2.62. The inventories are adequate for the holiday season and butter futures are below $2.00/lb. from January onward. New Zealand's September milk production is down 7.5% from the same month last year. The Australian dollar is down slightly, the New Zealand dollar up by 1.2%, and the Euro down by 4.3%. These currency values make U.S. dairy exports slightly less competitive with the European Union and Australia, but the rise in the Kiwi dollar makes us more competitive with them. Worldwide powder inventories are high, although US exports in September were well above a year earlier. The latest reported cheese exports and especially butter exports were well below last year. Exports to China, Japan, and the Middle East/North Africa are both down from a year earlier, although China bought more of most products in September than a year ago. Although rarely discussed much, the Middle East and North Africa are traditionally good markets for US dairy exports, but of course the wars and Islamic uprisings and general chaos in this region are hurting business and also this region is a convenient destination for the European Union with the embargo on sales to Russia. Overall, the export picture overall is not especially optimistic, with China holding huge inventories in a falling economy, while European production is higher and U.S. milk production is barely up (see below).

Table 1 lists some past and estimated future milk prices. I estimate the Pennsylvania October all-milk price to be $19.12/cwt, up $0.22 from September and the November price to be $19.12 as well. The dairy futures market prices show somewhat lower prices for Class III for early next year, before rising a bit in the Spring. They average $15.74/cwt. from November until June 2016. The Class IV futures prices average is expected to drop in January and then rise in 2016, although not very much. The October Class IV price was up $1.35/cwt. from September at $16.43/cwt., reflecting the butter rally. My forecast for the average Pennsylvania all-milk price for the next eight months is $18.76/cwt., up somewhat from most of 2015.

Corn and Soybean Markets
Soybean markets have changed very little because the harvest has progressed smoothly for most of the 2105 crop. The corn market has dropped a bit. World production of both was good this year, with no substantive changes since last year. The world's economies are mostly stagnant, with China and South Asia in the doldrums, the European Union struggling, and various local issues around the globe.

Income over Feed Costs (IOFC)
Penn State's measure of income over feed costs fell by 0.4% in October, as feed prices rose by more than milk prices, which rose by 1.1%. Figure 1 shows how these values compare to recent years. October's feed cost is 17¢/cow/day more than in September. October's value for IOFC of $7.49/cow/day is slightly below the September value of $7.52, which was the highest in 2015. Income over feed cost reflects daily gross milk income less feed costs for an average cow producing 65 pounds of milk per day. Table 2 and Figure 1 showing the monthly data follow.

The allocation of the revenue per hundred pounds of milk (milk margin) is shown in Table 3. The milk margin is the estimated amount of the Pennsylvania all milk price that remains after feed costs per hundredweight of milk production are paid. Like income over feed cost, this measure shows that the October PA milk margin was 0.4% lower than in September.

Milk Production
The latest milk production report showed September milk production up 0.56% from a year earlier, but down from last month, as is typical for late summer (Figure 2). This increase in milk production is minimal and the smallest increase of 2015. The Midwest continues to have substantial increases in milk production, while California continues to decrease production with its drought. The monthly cow numbers are shown in Figure 3. The September cow numbers rose by 0.4%, the smallest change of the year.


Table1


Table2a

Table2b


Table3a

Table3b


Table4

Table5

Table6

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11.13.2015