FAS Outlook

http://www.fas.usda.gov/cmp/outlook/2009/Nov-09/AES-11-30-2009.pdf

USDA's Foreign Agricultural Service (FAS) regularly publishes a trade outlook report. The most recent can be found at the link above.

On page 5:

The fiscal 2010 export forecast for livestock, poultry, and dairy products is up $200 million to $19.9 billion, as strong gains in dairy outweigh moderate declines in poultry exports. The forecast for exports of dairy products is raised by 10 percent with U.S. prices more competitive as global prices have staged a dramatic recovery. Further, the recent decision by the EU to sharply curtail export subsidies has provided a significant boost to global dairy prices. Import demand is expected to expand slightly while competitor supplies—particularly from Oceania—will likely

be constrained by lower-than-expected production.

So now you can see why block cheese has fallen $0.22/lb in the past few days - or maybe not.

Fortune Telling from DC

http://www.ers.usda.gov/Publications/LDP/2009/12Dec/ldpm186.pdf

For what its worth:

Slightly Less Milk Production and Firm Global Demand Combine To
Raise 2010’s Milk Price Forecast
Feed costs have fallen substantially in 2009, but are unlikely to fall as much next
year. The benchmark 16-percent protein ration value is projected to average in the
mid-$7.00 per cwt range this year compared with over $9.00 per cwt in 2008. In
2010, the price should continue to fall, but not by nearly as much. Falling soybean
meal prices will constitute a large share of the drop. Corn prices for the 2009/10
crop year are forecast to decline to $3.25 to $3.85 per bushel compared with the
2008/09 crop year average of $4.06 per bushel. Soybean meal prices are forecast to
decline from $331 per ton average in 2009/10 to a forecast $260, with $310 per ton
in 2010/11.
The U.S. dairy herd is forecast to continue to contract in 2010, with most of the
herd reduction coming in early 2010 and attenuating later in the year. The U.S.
dairy herd is expected to average 8.97 million next year and is expected to average
below 9 million cows in each of the four quarters of 2010. The forecast decline in
herd size will represent a 2.5-percent decline year-over-year. This decline follows a
1.3-percent decline in 2009. In contrast, milk production per cow is forecast to rise
to 20,950 pounds, a 1.84-percent year-over-year increase and slightly ahead of the
5-year-trend increase. In light of lower feed prices and improving milk prices, the
short-term response is to produce more milk per cow as rations are improved. This
will occur before producers undertake any herd expansion, which requires
investment in livestock.
Commercial disappearance is forecast to rise by less than half-a-percent next year
on a fat basis and to be virtually unchanged from 2009 on a skims-solids basis.
World markets remain firm, and the export forecast remains unchanged from last
month. Product exports are projected to continue to rise next year, especially for
nonfat dry milk (NDM) and whey products. Exports of NDM will help draw down
stocks next year on a skims-solids basis, but stocks on a fats basis will be drawn
down less. Imports are forecast to decline slightly next year on a fats basis but to
rise slightly on a skims-solids basis.
Product prices across the board will be higher next year. Cheese prices will likely
average $1.290 to $1.300 per pound in 2009 and rise to average $1.615 to $1.695
per pound in 2010. Butter prices are projected to average $1.195 to $1.225 per
pound and average $1.430 to $1.540 per pound next year. After averaging 91.0 to
93.0 cents per pound this year, NDM prices are forecast to climb to average $1.245
to $1.305 per pound in 2010. Whey prices are projected to average 25.5 to 26.5
cents per pound in 2009 and rise to 35.0 to 38.0 cents per pound next year.
The higher price prospects for dairy products both this year and next will boost milk
prices as well. After averaging $11.30 to $11.40 per cwt in 2009, Class III prices
are forecast to rise to average $15.15 to $15.95 per cwt next year. Likewise, Class
IV prices are expected to climb from $10.75 to $10.95 in the current year to average
$14.60 to $15.50 per cwt in 2010. The all milk price is expected to average $12.70
to $12.80 this year and rise to average $16.35 to $17.15 in 2010.

Relationships

Barry Wilson publishes a very good "Dairy Industry Newsletter" (DIN)from England. Subscription rates in the U.S. are a mere $790/year. An on-line edition is available for $1000/year.

In the December 8, 2009 edition DIN states, "Chinese imports of dairy products from world markets have soared this year."

A table shows October 2009 and November 08 - October 09. Whole milk powder increased 340%in the year and increased 260% in October 2009. Skim milk powder(SMP), which is essentially NFDM standardized to a fixed protein level, increased 18% in October 2009.

Meanwhile, USITC database shows U.S. exports to China of SMP, Jan-October 2009 have fallen 67% when compared to the same period in 2008.

Fonterra is, no doubt, the lead supplier. There is talk of a trade deal with the U.S that would give N.Z. (Fonterra)special trade privileges. Seems like that is already in place.

Down Again

(click on image to enlarge)

Most people I speak with say milk is fairly well balanced. Nevertheless, someone for some reason is driving the price of block Cheddar on the CME down.

If you compare the "Commitment of Traders" report above with the one I posted with data from December 15, 2009, you will notice an increase in shorts. Futures are essentially a bet. Longs are betting prices will increase and shorts are betting they will go down.

There will be no shortage of people with opinions on what is happening but, the opinions which will probably be the most worrisome will be the bankers.

As Mark Twain said, "A banker is a fellow who lends you his umbrella when the sun is shining and wants it back the minute it begins to rain."

Responsibility?

(click on image to enlarge)

The above auction listing will probably become more common. I am reminded of Genesis where Cain responds, "Am I my brother's keeper?"

From the standpoint of decency, does the bank have a responsibility to make certain the cows a adequately fed?

When all is said and done, there are many more to share in the blame for this current nation dairy tradgedy.

Price Signs Not Evident

(click on image to enlarge)

This week block Cheddar fell considerably, as did futures. The Commodity Futures Trading Commission publishes the "Commitment of Traders" (COT) report.

The most recent COT with data collected last week shows more milk committed to "long" positions.

Still my guess is that someone had futures positions which needed to be rescued.

To Your Health

If someone were born in a manger today,sure enough, the authorities would be notified and the child taken from the parents.

No, the blessed event takes place today in a hospital where the costs approach $13,000 in rural America.

The health care crisis in America today is an insurance industry generated problem. We are the only developed nation in the world where health care is not a right.

One of the biggest steps which could be taken to help family farms is affordable health care. In a decent year, it takes all of the income from quite a few cows to pay for insurance.

While milk is priced below the 1982 - 84 base tracked by the Bureau of Labor Statistics, medical care is nearly 400% more. Doctor's fees are 323% higher. Health professionals donated nearly $100 million in the 2008 election cycle - good investment.

Many think of government health care as socialistic. Well, consider the constitution of Japan, in which General Douglas MacArthur played a heavy hand:

Article 25. All people shall have the right to maintain the minimum standards of wholesome and cultured living. (2) In all spheres of life, the State shall use its endeavors for the promotion and extension of social welfare and security, and of public health.

http://history.hanover.edu/texts/1947con.html


In 1947 Article 25, and MacArthur's concept of what America stood for were much more closely related. In 1947 American dairy farmer's could pay their bills, including medical bills, and all without off-farm income.