DAIRY OUTLOOK
Hal Harris
Clemson University
Southern Outlook Conference
September 2001
Atlanta, GA
How many of you believe that farm level
milk prices are determined by supply &
demand?
Price
Supply
$13.50
Demand
160 B Lbs.
Quantity
Milk Production & Commercial
Disappearance, U.S., 1975 - 2000
170
Production
160
Commercial
disappearance
150
140
130
120
19
99
19
97
19
95
19
93
19
91
19
89
19
87
19
85
19
83
19
81
19
79
19
77
110
19
75
Billion Pounds
180
BFP/Class III 1997-2001
$18
1997
1998
1999
2000
2001
Dollars Per Hundredweight
$17
$16
$15
$17.34
How High
?
$14
$13
$12
$11
$10
$9
$8
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Aver
BFP or Class III Milk Price versus the Support Price,
1970-2000
$19
Dollars Per Hundredweight
$17
$15
$13
$11
$9
$7
$5
$3
Support price
BFP/Class III price
Number of milk cows, 20 states, 1997-2001
1997
1998
1999
2000
2001
7840
7820
Thousand Head
7800
7780
7760
7740
7720
7700
7680
7660
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Number of milk cows, 20 states, 1997-2001
1997
1998
1999
2000
2001
7840
7820
Thousand Head
7800
7780
7760
7740
7720
7700
7680
7660
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Milk per cow, 20 states, 1997-2001
1700
1997
1998
1999
2000
2001
1650
1600
Pounds
1550
1500
1450
1400
1350
1300
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Total Milk Production, 1997-2001, 20 States
13000
1997
1998
1999
2000
2001
Million Pounds
12500
12000
11500
11000
10500
10000
Jan
Feb Mar
Apr May Jun
Jul
Aug Sep
Oct Nov Dec
Milk feed price ratio
4.3
4.1
1999
2000
2001
4.09
4
4.17
3.85
3.9
3.84
3.73
3.67
Ratio
3.7
3.65
3.61
3.59
3.5
3.4
3.38
3.32
3.3
3.1
3.1
3.07
3.31
3.29
3.21
3.39
3.25
3.17
3.12
3.11
3.02
2.94
2.9
2.9
3.03
3.04
Nov
Dec
2.94
2.8
2.67
2.7
2.5
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Commercial Disappearance, Jan - May
Percent Change from 2000
Fluid
-0.1
NFD Milk
39.2
O Cheese
2.1
A Cheese
1.6
-5.7Butter
All
-10
1.6
0
10
20
Percent Change
30
40
50
1998 Summary
•
•
•
•
•
•
Average BFP = $14.24 a record
Average all milk price = $15.46
Average number of cows 9,154,000 ; -1.1%
Milk per cow 17,189; + 1.9%
Total milk production 157.3 billion Lbs; +0.8%
Commercial disappearance 159.8 billion Lbs;
+2.3%
• Imports 4.59 billion pounds; +41.2%
1999 Summary:
•
•
•
•
•
•
Average BFP = $12.86
Average all milk price= $14.38
Number of milk cows 9,156,000; +0.1%
Milk per cow 17,772; +3.4%
Total milk production 162.7 billion lbs; +3.5%
Commercial disappearance 164.9 billion lbs;
+3.2%
• Imports 4.77 billion pounds; +4/0%
2000 Summary
•
•
•
•
•
•
Average Class III = $9.74
Average all milk price = $12.34
Average number of cows 9,210,000; +0.6%
Average milk per cow 18,204; +2.4%
Total milk production 167.7 billion Lbs; +2.7%
Commercial disappearance 169.2 billion lbs;
+2.3%
• Imports 4.45 billion lbs; -6.8%
What is going on in 2001
• July Class III = $15.46, $4.80 higher than July
2000 (July $10.66)
• Average number of cows Jan –June. 9,141,000; or
-0.6%
• Average milk per cow Jan – June. 9,183 pounds; or
–1.0%
• Total milk production Jan – June 83.9 billion lbs. ;
or -1.7%
• Commercial disappearance Jan – May 1.6%
CME Grade AA Butter Prices, 1999-2001
$2.10
1999
2000
2001
Dollars Per Pound
$1.90
$1.70
$1.50
$1.30
$1.10
$0.90
$0.70
Jan Feb Mar Apr May Jun
Jul
Aug Sep Oct Nov Dec
CME 40# Cheddar Block Price, 1999-2001
$2.00
$1.90
1999
2000
2001
Dollars Per Pound
$1.80
$1.70
$1.60
$1.50
$1.40
$1.30
$1.20
$1.10
$1.00
Jan
Feb Mar
Apr May Jun
Jul
Aug Sep
Oct Nov Dec
NFD Milk Western Price, 1999-2001
$1.0200
Dollars Per Pound
$1.0150
$1.0100
$1.0050
1999
2000
2001
$1.0000
$0.9950
$0.9900
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Why these dairy product prices are
important?
• Farm level milk prices based off of butterfat,
protein, and other solids component values.
• Component values based off of dairy product
prices:
- Butterfat price off of price of butter
- Protein price off of price of cheese
- Other solids price of price of dry whey
• Class III price per 100 pounds is the sum of the
butterfat, protein and other solids values in 100
pounds of milk
Other class prices:
• Class IV: Butterfat value same as Class III and
nonfat solids value based off of nonfat dry milk
price.
• Class II: Advanced Class IV plus $0.70 plus Class
III butterfat value.
• Class I: “Higher of” advanced Class III or Class
IV skim value plus an advanced butterfat price
plus a Class I differential that varies by market
Producers get paid:
•
•
•
•
•
•
Price per pound of butterfat marketed
Price per pound of protein marketed
Price per pound of other solids marketed
Somatic cell count payment/deduct per 100 Lbs.
Producer Price Differential per 100 pounds
Other competitive premiums
• The point: There are major differences in prices
received among producers in a given market and
between markets
What about the Butter/powder tilt?
• Support price $9.90 (3.67% butterfat test)
• As of June 13th, CCC purchase prices:
Butter: $0.6549 to $0.8548 (+$0.1999)
NFD: $1.0032 to $0.90 (-$0.1032)
Federal Order Prices (Utilizations May
2001)
Class:
I
II
III
IV
Upper Midwest
21%
3%
All Orders
36%
9%
75%
1%
47%
8%
Movers of Class I & II
• Class I is the “higher of” skim milk value of Class
IV or Class III, plus a Class I differential
• Class II is the Class IV skim milk value plus $0.70
• Question: Will nonfat dry milk price to and stay at
the $0.90 support level?
The punch line: What will we see for milk
prices the remainder of this year and 2002?
• The answer: It depends upon the weather.
• Cow numbers are lower, but seem to be stabilizing
• Replacement heifers are short on supply and high
priced.
- 3.6 million head July 1,2001, down 3%, and only 39 per 100
milk cows.
- Changing dairy farm structure is impacting dairy replacement
numbers
- Dairy expansions limited by number of replacements and price
of replacements
Other factors to consider:
• Milk per cow is improving
• Feed prices:
- Milk feed price ratio will remain favorable (the ratio of pounds of
16% mixed dairy feed equal in value to 1 pound of whole milk.
Considers alfalfa, corn and soybean prices.
- High quality Alfalfa hay is short supply
- combination of electrical power pressure and environmental
pressures in the Pacific NW
- Utilities paid farmers to idle land in Idaho (250,000 acres) and
Washington (70,000 acres)
- water cut-offs to protect fish habitats
- However innovative rations without alfalfa
• Slowing of demand growth
Farm Level Milk Prices: 2000-2002
Month 2000 III 2001 III 2001 IV 2002 III
Jan
10.05
9.99
12.13
12.00
Feb
9.54
10.27
12.70
11.80
Mar
9.54
11.42
13.46
11.90
Apr
9.41
12.06
14.41
11.70
May
9.37
13.83
15.04
11.50
Jun
9.46
15.33
15.33
11.90
Jul
10.66
15.46
14.81
12.25
Aug
10.13
15.40
14.65
13.00
Sep
10.76
15.30
14.50
13.50
Oct
10.02
14.70
14.30
13.20
Nov
8.57
13.70
13.90
12.80
Dec
9.37
12.90
13.11
11.75
Aver. III 9.74 (IV 13.36
14.03
12.28
or IV
=
$11.83)
Aver
12.33
15.35
14.10
All Milk
2002 IV
11.40
11.85
12.25
12.65
12.65
13.10
13.55
13.75
13.95
13.75
13.10
12.25
12.83
Chapter 3
Administration Releases
its “Farm Bill Principles”
• Supporting Prices is SelfDefeating
• Supply Controls Unworkable
• Stockholding Distorts Markets
• Programs Have Unwanted
Consequences
• Land Values Inflated
• Large Farms Get Most
Benefits
Principles
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•
•
•
•
•
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Learn from Past Lessons
Recognized New Operating Environment
Expand Open Markets
Grow the Sector by Global Expansion
Compatible Farm & Trade Policy
Strengthen Global Leadership
Build on Diversity
Market Oriented Safety Net
Build Infrastructure