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2012 World Ag Expo Seminar: Outlook on dairy’s 2012 prices and beyond

PD Editor Karen Lee Published on 29 February 2012

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James De Jong (right), agriculture analyst for Rabobank N.A., began his morning seminar echoing how important the export market is to the U.S. dairy industry for 2012 and beyond.

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“Without this global market we would not have been able to grow at the rate we are accustomed to in the U.S.,” De Jong said. The U.S. dairy industry is highly linked to the global market.

To exit that market would mean contracting the industry by 8 to 10 percent, a feat that would be detrimental to most dairymen.

Population, income growth and urbanization are driving increased dairy consumption globally. A lot of this growth is not going to be happening evenly across the world, he said.

China and Southeast Asia are at the forefront. Consumption is also anticipated to grow in India, but that country believes it can be self-sufficient in supplying the demand.

Slower growth is expected in North America and the European Union, as incomes aren’t growing nearly as fast and the market is quite saturated with dairy already.

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Cost of production is high all over the world and De Jong said he believes dairymen will have to garner a high price for milk in order to keep producing. The U.S. will most likely become a supplier to other countries where the cost of production is higher than here.

He stated that the gap in cost of production has really started to close between New Zealand and California, allowing U.S. export products to be competitive with New Zealand’s prices.

De Jong said that while he is aware of the recent drop in California milk prices, when looking ahead to this next year, dairy prices will need to be between $16 and $19.50 to keep the current milk supply. Most California milk producers that are purchasing feed are finding breakeven at $16 to $16.70.

He is predicting a $30 to $50 drop per tonnage basis on hay this next year as more dairy producers are opting for corn silage instead. However, it won’t drop much more than that as hay producers are shy about planting too much and not being able to sell or not being paid for what they do sell.

The corn price is expected to stay fairly high at $5.75 to $6.50 per bushel or $205 to $235 per ton through 2012. This price is holding due to the dry weather pattern in South America.

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De Jong’s colleague, Vernon Crowder (right), said 2012 is going to be a tougher year than last year. Cows are producing a lot of milk, and the current prices are down and not sustainable.

Dairy producers should expect to see interest rates start to pick up later next year or in 2014, Crowder said. Those increases will strengthen the U.S. dollar, which could hurt the export market. Land prices may also fall 10 to 20 percent in that time.

Now that the U.S. is a player on the global market it is extremely important to the industry; however, it is also very volatile. De Jong said dairy producers need to adopt some sort of strategy to deal with the volatility, whether it is building a stronger balance sheet, owning land, hedging feed and/or using the futures market. PD

Expo seminar summaries
For the first time ever at World Ag Expo, Progressive Dairyman presented nine dairy-specific seminars. Prominent experts from across the U.S. addressed issues at the forefront of today’s dairy industry.

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Karen Lee
Midwest Editor

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