From the frozen parlor pit2-8

[jrsiajdranch]

It's a bit nippy out!  -13 this morning here.  I thought last week was cold but I can't even get the skid loader to start this morning. Gonna be a couple of hours before all the cattle get fed.  We don't usually quit at trying to get the cattle fed but this morning it seemed like nothing was gonna work so we figured wait till daylight and then go ahead.  It is gonna be a long day.  Of course last night we had a cow have a calf. Calf was upside down and backwards!  Momma is fine.  Milked out real nice this morning. Calf was a loss. But what are you gonna do?

Milk markets are a tale of two markets right now. If you look at the domestic market you see burdensome supplies of cheese with ample production.  IF you look to the world supply it is full of shortages.  Our dairy farm leadership seems to be narrowly focused on our domestic market in it's attempts to get legislation passed that includes a supply mgt. scheme. The rest of world meanwhile is considering how do we get enough supply?

Last year in feb. we were looking at sub 13 dollar milk for march as of yesterdays close on the futures we are looking at $18.56 class 3! 

Last year we were trading blocks around $1.30 a pound at this time, yesterday we closed at $1.8375! 

Also remember cull cows were in the mid 30' to low 40's Right now they are in the high 60's to low 70's!

All of this is real good but before everybody screams this will bring on expansion remember last year we were trading corn around $3.50 and SBM was at or under the godawfull price of $300/ton.

So actually we have barely lept up with costs. In fact in some areas we are behind where we were at this last time last year!  Remember price received is only half the equation!

So here is some info from yesterdays cme recap. I thought this might say it better than I will.

Firm international markets buoying U.S. prices
Milk producers, handlers and processing plants are trying to return to normal after
blizzards wreaked havoc last week. For the middle swath of the country
temperatures remain well-below normal with significant snow cover. Milder
weather has returned to California’s Central Valley.
International prices were higher across the board in Dairy Market News’ latest
fortnightly survey. SMP is trading for $1.59-$1.86, the highest since summer 2008,
DMN says. Butter is pegged at $2.04-$2.36 out of Oceania (the highest ever, see
chart) and $2.38-$2.49 out of Europe (the most since November 2007). European
whey is 54-64¢. ‘‘Traders and handlers are stating that demand is very strong as
potential buyers are looking everywhere for needed supplies. Demand is outpacing
supply at this time,’’ DMN notes. ‘‘International demand for manufactured dairy
products is strong. Much of this interest is for second quarter of 2011.’’
Spot cheese prices were bid higher again today with no trades taking place. Milk futures increased as well, with new high closing prices in the
MAR-AUG contracts.
Last week CWT accepted 12 bids to subsidize exports of 5.1 million lbs. of cheddar cheese. Delivery will take place through July.

Needless to say I am bullish on this dairy market.  I think we will keep rising. and as we do it will be our export mkt. that actually takes us higher. We are into the time period when The majority of the major export countries are in a lull of their production. From here on out the KIWI"s will only have less to sell till late summer here. The EU has had it's herds decimated by the global dairy depression so they are not going to push back to being a major exporter for a while. Russia is still reeling from it's drought and it will take years to build back it's herds. India is just keeping even. and well China is just gonna have to come to us as Argentine and Brazilian milk production is still underwhelming estimates.

However with all this rosy outlook our crazy pricing method actually came out with a lower price than lat month!

Jan. class 3 milk was lower by 35 cents to $13.48/cwt. while class 4 rose $1.39 to $16.42.  Class three is the ball park for us mid westerners as most of our processors are making cheese.  Class 4 is going to help the guys out west as the majority of their product is made into butter and powder.

This leads me to the policy rant.  This week Rep. Lucas made one of those wide open ended statements to NMPF that he was willing to "look" at dairy policy.  This was touted as a huge win for the dairy leadership as Colin Peterson also said the same thing. However what does that mean?

First off in political discourse this means absolutely nothing!  Does anybody envision this group opening up the farm bill before 2012?  I would bet against that!  Second the measures that the Lucas has put forward for new legislation include a broad based plan to take all budgets back to 2008 levels.  So not only must new proposals be budget neutral they must be real cuts.  The FFTF plan of NMPF is DOA with this reality.  (HOW lazy am I not spell all that stuff out)  But at the base part of the FFTF plan is a taxpayer assisted margin insurance plan. At the base rate (knda liekl the base coverage for crop insurance) it will cost taxpayers approximately $1.9 billion dollars!  This is all new spending!  They say they are gonna get rid of the MILC pmts. and DPS.  But that is only a fraction of the total cost.  So I think this plan stands a snow balls chance in the devils neighborhood!

So once again lets use the KISS principle. Get rid of the government intervention with all it's classes and it's goofy formulas,make allowances and state funded pricing schemes and just trade the CME! Looks to me that it would gain me about 5 dollars a hundred. folks that is several thousand dollars that would come to me and wouldn't cost the American taxpayer a dime in increased taxes. But it also doesn't fund a bureaucracy so it will never happen! 

I wonder if Marketeye is gonna hear anything about the Brazilian dairy industry?

Well another hour till daylight here so I think I am gonna take a nap. BE safe JR

[Jim Meade / Iowa City]

JR, what do you think the dairy industry would look like in five years without the current government intervention?  Ten years?  Would the family dairy return?  Would the Wal-Mart dairy (one per state) be the new norm?  Would would the evolution be?

Take a look at the article in Choices magazine that I talked about in Farm Business Talk.

http://www.choicesmagazine.org/magazine/article.php?article=152

[redrotor]

JR, 2 questions. Don't you need Fed.Market Orders to get your share of Class 1 dollars? What are springers selling for now. A neighbor of mine claims he's exporting grade springers overseas for "big bucks". Some holes in that story, I think.

[k-289]

Where did the "glut" of product go ? Who ever puts out these reports should be held accoutable ---it doesn't matter what commoditie there was out there--we supossedly had an over supply untill june of 2010--before that came the 2008 surge etc. with all of the expert's NOT wanting to "role the tape" on what was said  about a marketing plan--look's as if the "merk" might be protecting everyone except the producer --opposite of it's intended role--we all know what "Ace's and eight's" are--keep one's cards close

[jrsiajdranch]

Wow lots of good questions. I just came in to get a phone number and warm up for a second. I will get to all of themlater. It is freakin cold out and still no skidloader! WHy do I do this again?

[Jim Meade / Iowa City]

"WHy do I do this again?"

JR, warm your hands before you grab onto the cows or they'll be asking the same question!

[rightone]

winter weather.  

Just have a double to triple empty supply line to try to refill once things can MOVE to end users.

Last week a bunch of temps ran 0 to 10 degrees below zero quite aways SOUTH of the usa/mex border.

Whole area of and including El Paso TX for instance has No water due to last week's cold.

Juarez ( "El Paso South" so to speak )...same deal.

Gonna be 2 to 4 weeks late running irrigation water on a bunch of S usa this year.

Expo Zebu is end of April, thru 1st part of May this year.

ALOT of zebu dairy cattle / stuff etc there.....is in BR and is the Globe's largest cattle show.

India / China / Eygypt ...whole globe it seems shows up, and the focus is of course zebu type dairy cows and industry thereof.

More milk, cheese etc likely produced milking Brahmas than any other type/breed of cattle ( least that's the way it appears to me ).

1st part of June is the Fiecora cattle show ( Globe's largest mostly indoor cattle show ), Fiecora focus is Beef.

Seems to me like the usa dairy folks would have MUCH higher prices WITHOUT the usa govt involved in pricing their product.

Unlimited global demand for protiens, and cheese in particular easy to sell and close to the plate for the end export user.

JR, that usa govt teat you folks keep on sucking, is basically Insurance that your product prices stay 70% cheaper than anywhere else on the globe.

[redrotor]

Historically, the reason US has trouble exporting dairy is because we are the higher priced products. When the cheap stuff is gone, then importers look to the US.

[k-289]

If the world market has cheaper product --how can they import high priced US grain to feed with ?

[jrsiajdranch]

Well Jim interesting article.  I don't have any real problems with how they portray things. I think that sometimes we think because things have always been one way we think they will continue to be that way.  Just becasue we have always had bigger farms doesn't mean that trend continues forever. One of the things that I remember from the early 80"s was that Gov. had put alot of money into dairy thru support prices in the late 70's. WIth high unemployment guys who had grown up on dairy farms and who's dads had an old stanchion barn got back in becasue 30 cows was a pretty good income in the early 80's.  When Reagen cut the support price the bottom fell out of the thing  these guys dispersed very quickly.

My point is with high grain prices and high unemployment why won't some folks maybe start taking back over the farm that the family has been renting out for several years?  Especially if the returns to farming will vastly outstrip the rent pmt.?  I know of one guy who has already done this. He took land away from a several thousand acre farmer and is farming about 600 acres and making a real good living.  He lost a good job and was able to use his 401k to get some small equipment and go totown farming.  So this may be the newest competition down the road.

This same logic makes me think that maybe we have seen the end of the mega dairy. It is very capital intensive and most lenders are wanting to have everything locked up with PHYSICAL purchases not just hedging. If you have 5,000 cows you need about 2300 acres of CS to have enough feed. with todays basic input costs you need to have 2.3 million just in CS! not mention any hay needs or corn grain needs.  THen you need to figure that most of your interest is going to be variable so that is abig risk. You must also realize we as an industry built our labor force on the backs of cheap immigrant labor. in todays political landscape I don't think this is going to continue. Also the cost shifting that many dairies were able to do by paying low wages and allowing the social safety net to catch the basic needs that the cheap wages couldn't pay for is gone.

A family dairy is going to be the most succesful model that doesn't necassarily mean 50-60 cows.  It probably means the size that can fit into your land base.

The mega dairies are also not producing for a domestic mkt. anymore. With world prices routinely outpaceing our domestic mkt they are banding together to have 100,000 cow groups and building drying plamts to export their milk overseas. These guys can't make it on the domestic mkt. and they are big enough to eliminate the middle man and mkt to an oversease customer directly.

ALso without gov. intervention the biggest thing is that farms will get smaller. the safety net right now gives banks very little real exposure with more bank exposure than they wouldn't allow some of the things that they currently do.