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Veteran Advisor

from the parlor pit 9-27

Fall is in the air this morning.   When I cranked up the stave silo this morning the steam from the silage filled the feed room.  That is always a comforting sign to me. the feed smells good and the heat that escapes feels good.  The cows are happy as well.  This is one of those times of the year when it is easy to make milk. You can work hard but not die in the heat. and by the end of the day you are in your T-shirt.

Lots of combines will be runnning this week around here. With the weather forcast ahead for the week I think we could have the majority of the beans knocked out around here.  Bean yields have been very good lots of yields in the 60's.  Corn is fair to average.   Having farmed in Michigan for most of my farming carrere I still shake my head when guys say it "only" went 180.  I can remeber watching the yield monitor for a long time in the late 90's early 2k's and hoping to see 180 on the monitor!

On to the dairy mkts.

Here is a good article from Rabo bank they do a good job of looking at the world situation.

They look toward good conditions in the world for milk production which should hold down fears of shortages.  They also point out that economic fears will trump all other fears which should keep a lid on prices.

the outlook for NZ  is very favorable.

Forecast milk prices remain strong despite recent market volatility. Fonterra reaffirmed its opening price, and Westland lifted its forecast to NZD 6.50/kgMS to NZD 6.90/kgMS in early September.

Climate permitting, increased YOY milk production will continue to gather pace during Q4 when the seasonal flush occurs. However, fewer new dairy farms are entering production and producers are taking a considered approach to budgeted expenditure and debt reduction. Thus, milk flows are expected to show good growth of up to 5 per cent to 8 per cent over the season but not spectacular double digit increases.

Also they are very favorable to Aussie milk production.

The best winter rains in years have set up pastures nicely for spring in rain fed regions, and irrigators in Northern Victoria look almost certain to receive 100 per cent of their water allocations this year. Indeed, as irony would have it, if there is a risk to the Australian season at present, it is the prospect of a slow start due to excess moisture in some regions.

Milk production rose 3.2 per cent YOY in July, with growth likely to maintain that rate through 2H.

Export recovery is inevitably lagging milk supply, with July shipments down 12 per cent in volume terms. But momentum will build late Q3/early Q4, with growth rates for exports to exceed those for milk supply by late in the year. 

But toward the end of the article they point out our biggest factor limiting an increase in price to the general economy.

Recent months appear to have seen global dairy demand continue to expand, though predominantly driven by developing regions and quite likely at a slowing rate compared to early in the year.

Among key advanced economies, the US, the EU and Japan continue to tread an unexciting and below trend recovery, with painfully slow progress at best in generating jobs—US employment actually declined in May through August. Nonetheless, dairy sales do appear to have been rising YOY. Recent data showed a foodservice led pick­up in US cheese consumption offsetting declining liquid milk sales. The data also showed slow but welcome growth in the French and German dairy markets and even signs of some stabilisation in Japanese drinking milk sales.

The economic environment is far more supportive in developing regions. China’s growth looks increasingly robust and is pulling along much of developing Asia with it. Good growth is also being registered in regions like Latin America. However, almost across the board, growth through the middle of the year will fall short of Q1 as global trade slows and/or policies are tweaked to rein in unsustainable growth.

But the summary statement has the reasons to be most cautious,

Upside influences

Any adverse weather event in New Zealand through Q4 would significantly alter market sentiment, given its central role in determining Southern Hemisphere surpluses this season. While we expect Russia to increase its purchases from the international market through Q4 in the wake ofthe recent drought, a particularly strong buying spree would significantly tighten trade supplies. While the recent grain price rally will have a limited near term impact on supply, a further material shift upwards would dampen milk production volumes in grain fed regions through Q4.

Downside influences 

Suppliers are heavily reliant on strong Chinese and Russian import buying to balance the market through Q4. If this does not eventuate, the chance that prices will fall increases considerably. A double dip recession in the US would choke off domestic demand growth at a time when local supply momentum is strong and cheese inventories are heavy. This would bring unusually large US exports through Q4. An aggressive liquidation of EU intervention stocks through Q4 would be price depressive.      

What does all this mean? Steady as we go.  Don't count on this dairy cycle being like any other one we have been thru.  It looks like we may hold in this milk price range for quite a while and with feed cost subsatntially higher we must focus on our fixed costs. Keep debt down in other words.  From here on out our variable expenses will the budget breakers. This is one time where volume won't help reduce costs as the variable costs of production are actually very similar between herd sizes. regional differences of course will be more  evident,however so will the regional differences in milk price.  I wish every one the best of fortunes today, Be Safe. JR

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