2011 dairy outlook (don’t shoot the messenger)

Hoard's Dairyman: 

2011 dairy outlook (don’t shoot the messenger)

Fri, 12/31/2010

What goes into a “next year’s outlook” prediction? Paying attention all year long this year, talking regularly to producers, studying the economic horizon outside the industry, tracking trends, and decades of experience watching the industry go through its up and downs. Then add a few hunches, a guess or two, and have the guts to say what it all looks like. So here goes:

2011 doesn’t look good for dairy producers, not in general and especially out West. Remember what 2009 was like? 2011 probably won’t be that bad, but it could seem very familiar.

Six dollar corn and $90+ oil – even if they somehow manage to stay that low – mean high feed costs are a certainty. Huge cull cow prices are helping to thin the national dairy herd, but a glut of “extra” heifers that would not have been born without the widespread use of sexed semen in 2007-08 began freshening in October and will increase significantly during 2011.

We think that’s one reason why milk price futures are already awful for the first quarter of 2011 at the Chicago Mercantile Exchange. They’re higher the rest of the year, although we can’t even begin to understand why.

The bottom line figures to be a nasty margin gap for milk production for 2011. Instead of the $4 to $5 per hundredweight loss that producers tended to see in 2009, $2 seems more likely next year. Please don’t say, “Well, at least that’s not as bad” because if things do play out that way the effects could be even worse. The reason: the dairy equity bonfire that occurred in 2009 which left few producers with little or no equity and borrowing power to survive another squeeze.

We hope we're wrong about this; we really do.