Feed price worries abound at Arizona meeting

Hoard's Dairyman: 

Feed price worries abound at Arizona meeting

Date: 
Fri, 10/29/2010

Milk producers hoping for an optimistic feed outlook in 2011 got just the opposite at the Arizona Dairy Production Conference October 21. Instead of lower prices, speakers said there is a great risk of them going higher.

Coupled with the already-eroding Class III futures price trend at the Chicago Mercantile Exchange, it means 2011 is starting to look like a smaller version of the financial crisis that ruined dairy balance sheets in 2009.

One reason why is the rebound in economies around the world that is increasing feed demand and driving prices higher. The prolonged weak value of the dollar that makes U.S. corn and feed grains look cheap is another. Added to this is an unforeseen factor they said will magnify both effects if it happens: a drop in corn yields.

Joel Karlin, a feed market analyst and merchandiser for Western Milling in Goshen, Calif., (pictured) and Monte Hemenover, a dairy industry trends consultant in St. Louis, Mo., left little doubt they expect that to happen.

“You can’t underestimate the impact of dollar currency value changes on commodity prices, because this is a world market today not just a domestic one,” said Karlin, adding “We haven’t had a really bad down year for corn yields in eight years, and if it happens now we’re in trouble.”

Hemenover said that is exactly what he is already seeing and hearing in the Midwest.

Karlin noted that, “Earlier this month USDA made a huge reduction in projected corn yields from the September estimate. The last six times they did that the projection was also lowered on November. I see great potential for even greater volatility in corn prices during 2011 than we’ve seen in 2010.”