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Dairy Situation and Outlook

Dairy Situation and Outlook. Kenny Burdine UK Agricultural Economics. 2005 Overview. Mailbox and Class III prices lower Especially in 2 nd Quarter Milk production expands, prices hold their own in 3 rd Quarter Milk per cow improves (BST and strong prices)

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Dairy Situation and Outlook

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  1. Dairy Situation and Outlook Kenny Burdine UK Agricultural Economics

  2. 2005 Overview • Mailbox and Class III prices lower • Especially in 2nd Quarter • Milk production expands, prices hold their own in 3rd Quarter • Milk per cow improves (BST and strong prices) • Fluid and cheese usage pretty absorbent • Strong prices have supported replacement costs… even more!!

  3. US Retail Whole Milk Prices Retail milk prices much steadier in 2005

  4. US Milk Production (billion lbs)

  5. KY Mailbox Prices

  6. KY vs. Class III (2000-2003) KY $2-$3 above class III

  7. KY vs. Class III (2004) Gap has clearly tightened Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec

  8. KY vs. Class III (2005) Weak basis continues in 2005

  9. 2006 Outlook • Slow expansion, milk per cow to increase • Milk production expected up 1.5 – 2.5% • Demand not likely to offset production increase • Average all milk price expected to fall moderately

  10. Beef Situation and Outlook Kenny Burdine UK Ag Economics

  11. Livestock Marketing Information Center Data Source: USDA/NASS

  12. 2005 Beef Demand • Atkins / Southbeach “fad” peaked in 2nd Quarter 2004 • New BSE findings • Much higher energy costs => But, demand down a few percent at worst

  13. Livestock Marketing Information Center Data Source: USDA/NASS

  14. Livestock Marketing Information Center Data Source: USDA/NASS

  15. December 2005 Corn Futures Steadily decreasing corn prices have fueled a feeder cattle fire!!

  16. The Supply Side

  17. Overall Supplies • Beef production in 2005, 1-2% above 2004 • Slaughter weights up more than 1% • Canadian imports? • Highest beef import volumes in decades • Increase imports from New Zealand, Canada, and Uruguay • Lower import levels from Australia

  18. Livestock Marketing Information Center Data Source: USDA/NASS

  19. Feeder cattle supply was slightly higher in 2005, still historically low Livestock Marketing Information Center Data Source: USDA/NASS

  20. 2006 Beef Supply Outlook • Likely to see 3-4% production increase from 2005 • Canadian live cattle imports • Increasing slaughter weights • 05 calf crop • Exports and consumer demand to determine impact of increased supplies

  21. Where are We in the Cattle Cycle?

  22. Livestock Marketing Information Center Data Source: USDA/NASS

  23. Sign of continued cow herd expansion +4.2% Livestock Marketing Information Center Data Source: USDA/NASS

  24. Heifers on Feed by Quarter (as a percent of Steers and Heifers on Feed)

  25. How quickly are we expanding? • 2004 1% increase in total cattle inventory 0.6% increase in beef cow numbers • 2005 January - 4.2% increase in held heifers 400,000 more heifers than in 2003 • 1.2% of the US Beef Cow numbers!! • 2006 calf crop will be larger than 2005

  26. Management Implications • Spring of 2005 was probably the price peak for this cattle cycle • Cow-calf operations should stay profitable a few more years • Expansion = holding heifers • Signs of problems • Fast expansion – like in the 60’s & 70’s • Excessive input prices • Shifts in consumer demand

  27. Trade Developments

  28. Canadian Live Cattle • Live cattle moving since July • Pace of slaughter cattle imports is about ½ the 2002 pace (Aug & Sept) • Gas prices, greater slaughter in CA, etc. • Feeder cattle pace is greater than expected • Canada is shipping more boxed beef ~12% above pre-BSE pace

  29. Japanese Exports • Very little has changed since ESM last year • Working through Japanese regulatory system • Japanese continue to want more info • US counter threats don’t seem to be working => Everyone’s guessing!

  30. Kentucky Price Outlook

  31. KY Marketings

  32. KY Marketings (June to Dec)

  33. Where’s the Fall Run? Total Cattle Sold in KY (KDA market report) in 1,000 head

  34. Feeder Cattle Outlook • Prices likely to moderate in fall / early winter • Still have some calves to work through? • Grazing conditions • Winter beef demand • How quickly will live cattle imports accelerate? • Spring 2006 market weaker than 2005 • Heifer retention should continue • Canadian imports on-the-hoof and in-the-box

  35. KY Auction Prices700 to 800 lbs Steers (Med / Large #1)

  36. 2006 Projections (700 to 800 lb Steers)

  37. KY Auction Prices500 to 600 lbs Steers (Med / Large #1)

  38. 2006 Projections (500 to 600 lb Steers)

  39. CPH Outlook • CPH sales have seen exceptional price premiums over last two years • Market for pre-conditioned calves continues to look strong and stronger • Reasonable feed costs • 2005 COG less than $0.50 / pound • 2005 Return to L & M over $50 per head • Manage health and cost of gain

  40. Winter Backgrounding • Looks fair at current futures prices • Fall - Buy 550# @ $118 = $650 • Spring – Sell 850# @ $100 = $850 Margin $200 At $0.50 per lb of gain = $50 return

  41. Thank youQuestions

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