Agricultural Price Forecast Update on Impact of Future Growth in Nevada Dairies Fallon, Nevada May 22, 2014 Michael Helmar mhelmar@cabnr.unr.edu University of Nevada, Reno University Center for Economic Development Meeting the Needs of the New Plant Nevada dairy 50 1,250 Dairy cows, ths (L) Dairy cows (WMP plant) Milk production, mil. lbs. (R ) Production (WMP plant) 40 1,000 30 750 20 500 10 250 2000 2005 Sources: USDA, UCED 2010 2015 2020 FAPRI Baseline • Major factors in the outlook – Global economy, political environment – Global ag supply/demand balance – Agricultural policies – Energy needs and policies – Technology/productivity Emerging Economies Drive Global Growth Real GDP, % change 10 8 6 4 2 0 World Developed Developing Emerging -2 -4 2000 2005 2010 Sources: IFS, IHS Global Insight forecast 2015 2020 Individual Markets Move Differently Exchange rate index, 2005=100 140 120 100 80 World China Mexico Eurozone Japan 60 40 2000 2005 Sources: IFS, IHS Global Insight 2010 2015 2020 Interest Rates Could Spur Investment Interest rates, % 8 3-month T-bill AAA corporate bond 6 4 2 0 2000 2005 2010 Sources: IFS, IHS Global Insight forecast 2015 2020 Improved Supplies Ease Crop Prices 16 250 US Corn, $/bu (L) 14 US Soybeans, $/bu (L) 200 US Alfalfa, $/ton (R ) 12 10 150 8 100 6 4 50 2 0 0 2000 2005 Sources: USDA, FAPRI 2010 2015 2020 Milk Prices Will Reflect Feed Costs U.S. milk prices 22 4.00 All milk, $/cwt (L) Retail, $/gal (R ) 20 3.75 18 3.50 16 3.25 14 3.00 12 2.75 2000 2005 Sources: USDA, FAPRI-MU 2010 2015 2020 Growth Opportunity for Dairy Industry U.S. dairy exports, $mil 6,000 5,000 Butter Whey & other Cheese Fluid 4,000 3,000 2,000 1,000 0 2001 2003 2005 Source: International Trade Administration 2007 2009 2011 2013 Impacting the Nevada Price Outlook • Major factors in the outlook for 2014 – Continuing drought • Water storage • Range and pasture conditions – Hay acreage – Fallon WMP plant and dairy herd expansion – Fire season – California Weather, WMP Plant Influence Hay Outlook Nevada forage prices 250 16 Alfalfa hay, $/ton (L) Other hay, $/ton (L) Private grazing fees, $/AUM (R ) 200 14 150 12 100 10 50 8 2000 Sources: USDA, UCED 2005 2010 2015 2020 Drought Reduces Irrigated Acres, Number of Cuttings Nevada hay acreage, ths 300 275 250 225 200 175 150 Alfalfa 125 Other hay 100 2000 Source: USDA 2002 2004 2006 2008 2010 2012 California Losing Alfalfa Acres California hay acreage, ths 1,200 Alfalfa 1,100 Other hay 1,000 900 800 700 600 500 400 2000 Source: USDA 2002 2004 2006 2008 2010 2012 Worst Start in Years Nevada range condition, 0=Very Poor, 25=Poor, 50=Fair, 75=Good, 100=Excellent 100 75 50 25 2010 2012 2014 0 WK1 2011 2013 2000-2010 avg WK6 Sources: USDA, UCED WK11 WK16 WK21 WK26 Milk Prices Start High, Will Fall With Feed Costs All-milk price, $/cwt 22 California Nevada U.S. 20 18 16 14 12 10 2000 Source: USDA, FAPRI 2005 2010 2015 2020 Different End Use, Different Price Nevada milk price, $/cwt 30 25 20 15 Class I (1) 10 Class IIIa (4a) Difference 5 0 -5 2011 2012 Source: Nevada Dairy Commission 2013 2014 Profitability Expected to Return in 2014 Nevada dairy, $/cwt of milk sold 25 20 15 10 Other operating costs Other feed costs Purchased feed costs Gross value of production 5 0 2000 2005 Sources: USDA, UCED 2010 2015 2020 Meeting the Needs of the New Plant Nevada dairy 50 1,250 Dairy cows, ths (L) Dairy cows (WMP plant) Milk production, mil. lbs. (R ) Production (WMP plant) 40 1,000 30 750 20 500 10 250 2000 2005 Sources: USDA, UCED 2010 2015 2020 Wrap-Up: Mixed Bag • • • • • Global economy strengthening Feed costs are declining So far, milk prices are cooperating California a major market for Nevada Multi-year drought makes water shortage more acute this year • Dairy demand will boost hay needs • Range conditions might not be adequate Contact Information This presentation can be accessed on the University Center for Economic Development website at: http://www.unr.edu/business/research-and-outreach/uced/food-and-agriculturalpolicy-research-institute-(fapri) For more information or questions regarding this outlook please contact Mike Helmar at: Mhelmar@cabnr.unr.edu