Dairy Price Risk Management Milk Market Outlook

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Dairy Price Risk ManagementMilk Market Outlook
Cooperative Extension Ag and Natural Resources
Farm and Risk Management Team
Last Update May 1, 2009
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Monthly Basis
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Q Whats a Good Price?
A It All Depends..
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Outlook Information

• Milk Production Report
• Issued by NASS (USDAs National Agricultural
  Statistics Service) mid-month covering previous
  month
• Milk cow numbers, Milk per cow, and total milk
  production
• Monthly data for 20 selected states representing
  about 85 of U.S. milk production
• Quarterly data for all states

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NASS Milk Production Report Mar 09
Milk Cows and Production By State,
March 2008-2009 --------------------
--------------------------------------------------
---------- Milk Cows 1/ Milk
Per Cow 2/ Milk Production 2/
----------------------------------------------
----------------------- State

Change 2008 2009 2008
2009 2008 2009 From

2008 ----------------------------
--------------------------------------------------
-- 1,000 Head ---- Pounds
--- Million Pounds Percent

AZ 186 190
2,190 2,090 407 397 -2.5
CA 1,842 1,822 1,975 1,920
3,638 3,498 -3.8 CO
126 128 1,945 1,980 245
253 3.3 FL 120 116
1,655 1,680 199 195 -2.0
ID 540 549 1,885 1,810
1,018 994 -2.4 IL
102 102 1,640 1,675 167
171 2.4 IN 166 167
1,700 1,750 282 292 3.5
IA 216 215 1,730 1,730
374 372 -0.5 KS
115 122 1,790 1,820 206
222 7.8 MI 345 354
1,870 1,890 645 669 3.7
MN 463 468 1,630 1,645
755 770 2.0 MO
110 108 1,300 1,320 143
143 NM 340 333
1,990 2,110 677 703 3.8
NY 626 623 1,690 1,670
1,058 1,040 -1.7 OH
280 277 1,560 1,590 437
440 0.7 OR 114 114
1,700 1,695 194 193 -0.5
PA 549 550 1,680 1,670
922 919 -0.3 TX
408 430 1,800 1,850 734
796 8.4 UT 85 85
1,720 1,720 146 146
VT 140 137 1,590 1,555
223 213 -4.5 VA
98 97 1,590 1,590 156
154 -1.3 WA 245 239
1,990 1,960 488 468 -4.1
WI 1,251 1,256 1,660 1,685
2,077 2,116 1.9

23-State

Total 8,467 8,482 1,794 1,788
15,191 15,164 -0.2 --------------------
--------------------------------------------------
---------- 1/ Includes dry cows, excludes
heifers not yet fresh.
2/ Excludes milk sucked by calves.

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Milk Cow Inventory
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Milk per Cow
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Milk Production Trend
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Outlook Information (Cont.)

• Milk/Feed Price Ratio
• Pounds of 16 dairy ration equal in value to one
  pound of milk
• Published around the first of the month as part
  of NASS monthly Agricultural Prices
• Dairy Product Stocks
• Commercial and government-held inventories of
  butter, cheese (by category) and NDM
• Published as part of NASS monthly Cold Storage
  Report

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Milk-Feed Price Ratio
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Outlook Information (Cont.)

• Dairy Product Production
• Monthly factory production of all major dairy
  products, U.S. and major states
• Published by NASS around the first of the month
  for second preceding month
• Dairy Product Prices
• Weekly prices and weights used to calculate all
  Federal Order Class prices
• Covers Butter, Block and Barrel Cheddar Cheese,
  Nonfat Dry Milk, and Dry Whey
• Issued by NASS Friday am covers week ending the
  previous Saturday

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US Production of Major Manufactured Dairy
Products, Jan-Feb 2009 v. Year Earlier
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Chicago Mercantile Exchange (CME) Daily Cash or
Spot Markets

• Grade A butter
• Block and barrel cheddar cheese
• Grade A and extra-grade nonfat dry milk
• Auction markets bids and offers with sale when
  a bid is filled or an offer is accepted
• Reported price changes with a sale, an unfilled
  bid, or an uncovered offer
• Thin markets sales represent only a small
  fraction of production
• Reference markets prices for off-market
  contractual sales tied to CME prices

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Outlook Information (Cont.)

• Commercial Disappearance
• Imputed consumption includes pipeline stocks
  as well as sales
• Published monthly by USDAs Economic Research
  Service
• Retail Dairy Prices
• Prices and price indices for major dairy
  products national and regional
• Published monthly by Bureau of Labor Statistics
  (BLS)

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Change in Commercial Disappearance, Nov 08 -
Jan 09 v. Year Earlier
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2000 and 2001 are USDA Forecasts
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Sources of Outlook Information

• Dairy Market News
• Includes up-to-date information on all important
  outlook indicators
• Issued weekly on Friday. No longer available in
  hard copy, but can be accessed free at
• http//www.ams.usda.gov/dairy/mncs/weekly.htm
• NASS Reports
• Subscribe to individual reports(varying
  subscription charges and release dates) or access
  free at
• http//www.usda.gov/nass/

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Sources of Outlook Information

• Internet Sites
• U-W Madison, Dept. of Ag. And Applied Econ.
• http//www.aae.wisc.edu/future/
• Links to all contracts and exchanges
• Charts and tables updated daily as new info
  released
• Includes excellent interactive tutorial on
  futures and options trading
• Downes-ONeill Dairy Team
• http//www.dairy.nu/
• Very quick access to current futures and options
  quotes
• Includes market analysis daily summaries and
  forecasts

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Sources of Outlook Information

• Internet Sites (Cont.)
• Penn State University Ken Bailey
• http//www.aers.psu.edu/dairyoutlook
• Long-range price forecasts
• Good links to all USDA reports
• Weekly market analysis
• National Program for Integrated Dairy Risk
  Management Education and Research
• http//www-agecon.ag.ohio-state.edu/faculty/cthrae
  n/idmer/Default.htm
• Not an outlook site, but contains a wealth of
  educational materials on risk management in
  general and futures and options specifically

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Consensus(??) Milk Price Outlook 2009 Dairy
Cow Numbers  Milk/Feed Price
ratio  Stocks Cheese
Butter  Product Prices Cheese
Butter
Nonfat Dry Milk  Total Milk
Supply  Commercial Use Other???