2012 Agricultural Outlook Update Dairy Outlook: Indiana Perspectives

1. 2012 Agricultural Outlook UpdateDairy Outlook: Indiana Perspectives Mike Schutz and Nicole Olynk Purdue University

2. Outline • Looking back • Strong rebound in milk prices • But, continued tight margins • What’s going on today? US and Indiana • The Dairy Policy Debate(s) • 2012 Price Outlook Purdue University is an Equal Opportunity/Equal Access institution.

3. Where are we today? Modified

4. Purdue University is an Equal Opportunity/Equal Access institution. Source:http://future.aae.wisc.edu/

5. Purdue University is an Equal Opportunity/Equal Access institution. Source:http://future.aae.wisc.edu/

6. Production per Cow in US Lbs. per Month

7. Production per Cow in Indiana Cows x1,000

8. State Trends June 2000 1668 786 2454 148K 198M 1400 June 2010 1346 306 1652 168K 285M 1695 June 2011 1317 262 1579 170K 291M 1710 June 1997 1875 1104 2979 140K 186M 1380 June 2006 1392 324 1716 166K 277M 1670 Change - 30% - 76% - 47% +21% +57% +24% Grade A Herds Grade B Herds Farms Cows Milk Production Production/cow (Dairy Program, IBOAH & Indiana Ag. Statistics)

9. Slaughter Dairy CowsManaging US Herd Size? With tight margins and high cull cow values … what next??? Dairy Cows (1000s.)

10. Balance Point? Is 2 the new 3? Purdue University is an Equal Opportunity/Equal Access institution.

11. Milk Price vsFeed Costs $

12. Purdue University is an Equal Opportunity/Equal Access institution.

13. Source:http://future.aae.wisc.edu/

14. Purdue University is an Equal Opportunity/Equal Access institution.

15. Butter in Cold Storage

16. NASS US Butter Price

17. Total Natural Cheese in Storage

18. NASS US Cheese Price

19. Purdue University is an Equal Opportunity/Equal Access institution.

20. Milk Price

21. Milk Class Prices $ 2010 2004 2005 2006 2007 2008 2009 2011 2012

22. Milk Class Prices (8/18/2011) $ 2010 2004 2005 2006 2007 2008 2009 2011 2012

23. Purdue University is an Equal Opportunity/Equal Access institution. Source:http://future.aae.wisc.edu/

24. December 2011 Futures (as of 8/16/11) • 80% chance between $14.60 and $20.94 RRecall: • December 2010: 80% chance between $12.51 and $16.75 ($13.48 Dec. 2010) Source: Jim Hilker's Market Outlook & Probabilistic Price Forecasts for Grain & Livestock; Michigan State University, https://www.msu.edu/~hilker/

25. March 2012 Futures (as of 8/16/11) • 80% chance between $13.11 and $21.12 Source: Jim Hilker's Market Outlook & Probabilistic Price Forecasts for Grain & Livestock; Michigan State University, https://www.msu.edu/~hilker/

26. An Industry Divided, Policy-wise • Foundation for the Future (FFTF) by National Milk Producers Federation. • Dairy Market Stabilization (Supply management) • Margin Protection (Gov. funded margin insurance) • Federal Order Reform • Strongly opposed by IDFA; DPAC; MN Milk Producers Assn.; WI Dairy Buisiness Assn.; CA Dairies, Inc.; Southeastern dairy orgs.; and others. • Introduced by Colin Peterson (D-MN) and co-sponsored by Mike Simpson (R-ID).

27. An Industry Divided, Policy-wise • Debate over Somatic Cell Count limits • Reduction to 400K required for EU exports • Proposal lost 26-25 at NCIMS(regional differences) • Some very early discussion in IN … BOAH rule? • Kroger single sourcing milk at 250,000 • Do you need regulation when you have “Politics via the market”?

28. On one hand … Fat basis exports rise in 2011 (over 2010) but soften in 2012 Historically high feed costs expected Increased milk production Larger US herd size – but – feed prices should slow growth in milk/cow Increased production in Oceania expected Weakening international demand … Slower growth in exports Milk Price Outlook

29. And on the other hand … Feed prices and recent weather impacting output Especially butterfat Tight butter inventories Higher proportion late lactation cows in winter/spring Near record high milk prices Cheese inventories relatively high – but – recent movements should lessen downward pressure on prices Theoretically … high cow cull prices providing incentives to reduce herd size/cow numbers ? Milk Price Outlook

30. In Summary … We’re Fragile • Policy??? • Domestic demand? Economic conditions? • Home consumption versus eating out • Export markets • FEED COSTS … will squeeze margins in 2012 • It isn’t just grains … forage prices are moving upward too!

31. Doug Leman named Executive Director of Indiana Professional Dairy Producers dougleman@IndianaDairy.org Purdue University is an Equal Opportunity/Equal Access institution.

32. Nicole Olynk nolynk@purdue.edu Mike Schutz mschutz@purdue.edu

33. Historical US Dairy Heifer InventoryHeifers for Milk Replacement over 500 lbs. Cows or Heifers (x1,000) Heifers / Milk Cows (%) Year Source: USDA NASS.

34. Wisconsin Income over Total Variable Costs by Production Level Ken Bolton, UW Center for Dairy Profitability