Southern Region Dairy Outlook September 25 2019 Atlanta

Southern Region Dairy Outlook September 25, 2019 Atlanta, GA Kenny Burdine and John Allison UK Agricultural Economics

Outline for Discussion • • • Review of trends and production levels Expectations for fall 2019 / 2020 Significance of DMC Impact of change to Class I mover Organic dairy potential in southern region

MILK COWS THAT HAVE CALVED JANUARY 1, 2019 (1000 Head) 12 280 12 15 125 614 1270 122 6 1730 100 205 161 40 325 0 253 6 7 53 43 36 5 Livestock Marketing Information Center 5 79 44 14 5 81 0 to 12 12 to 81 81 to 253 to 1731 11 116 2 Data Source: USDA-NASS 181 81 8 545 1 20 505 220 85 178 11 625 422 59 33 29 126 450

CHANGE IN MILK COWS THAT HAVE CALVED JANUARY 1, 2009 TO JANUARY 1, 2019 (1000 Head) -3 36 -4 -10 10 60 15 28 -1 -95 15 15 36 -22 -11 0 -4 -4 -33 -3 -23 -9 Livestock Marketing Information Center -2 -18 -12 -3 -7 7 -100 to -10 to 0 0 to 12 12 to 116 -14 -2 0 Data Source: USDA-NASS -23 14 -27 -11 115 0 1 -45 5 -17 48 -4 0 69 0 5 -4 -13 -18

MILK CONSUMPTION PER CAPITA Pounds 300 250 200 150 100 50 Data Source: USDA-ERS Livestock Marketing Information Center 2013 2011 2009 2007 2005 2003 2001 1999 1997 1995 1993 1991 1989 1987 1985 1983 1981 1979 1977 1975 0

U. S. PER CAPITA CONSUMPTION OF SELECT DAIRY PRODUCTS Butter Data Source: USDA-ERS Livestock Marketing Information Center Yogurt Cheese 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 22, 00 20, 00 18, 00 16, 00 14, 00 12, 00 10, 00 8, 00 6, 00 4, 00 2, 00

Current Impressions of Market • Things are a little better, but not good – Especially in south • Cow numbers decrease to summer 2016 levels – Enough to offset productivity gains now • Stocks suggest general tightening of dairy markets • Trade continues to add volatility – 16 exemptions to new Chinese tariffs that were to take effect this month

CHEDDAR CHEESE PRICES 40 Pound Block, US, Weekly $ Per Pound 1, 95 1, 85 1, 75 1, 65 1, 55 1, 45 1, 35 JAN APR Avg. 2013 -17 Data Source: USDA-NASS Livestock Marketing Information Center JUL 2018 OCT 2019

DRY WHEY PRICES US, Weekly $ Per Pound 0, 55 0, 50 0, 45 0, 40 0, 35 0, 30 0, 25 0, 20 JAN APR Avg. 2013 -17 Data Source: USDA-NASS Livestock Marketing Information Center JUL 2018 OCT 2019

BUTTER PRICES US, Weekly $ Per Pound 2, 90 2, 70 2, 50 2, 30 2, 10 1, 90 1, 70 JAN APR Avg. 2013 -17 Data Source: USDA-NASS Livestock Marketing Information Center JUL 2018 OCT 2019

NONFAT DRY MILK PRICES US, Weekly $ Per Pound 1, 40 1, 30 1, 20 1, 10 1, 00 0, 90 0, 80 0, 70 0, 60 JAN APR Avg. 2013 -17 Data Source: USDA-NASS Livestock Marketing Information Center JUL 2018 OCT 2019

DAIRY COW INVENTORY US, Average, Quarterly Thou. Head 9475 9425 9375 9325 9275 9225 9175 9125 JAN-MAR APR-JUN Avg. 2013 -2017 Data Source: USDA-NASS Livestock Marketing Information Center JUL-SEP 2018 2019 OCT-DEC

MILK PRODUCTION US Total, Quarterly Bil. Pounds 57 56 55 54 53 52 51 50 49 48 JAN-MAR APR-JUN Avg. 2013 -2017 Data Source: USDA-NASS Livestock Marketing Information Center JUL-SEP 2018 2019 OCT-DEC

2019 / 2020 Market Drivers • Cow slaughter appears to be leveling off • Margins have improved some – maybe enough for larger operations • Steady cow numbers + productivity gains lead to increased production for 2020 • Trade questions may continue through 2020

US All Milk Price (2009 to 2019)

Planning Prices for 2019 / 2020 (Southeast Region) 4 th quarter 2019 - $20 -21 1 st quarter 2020 - $19 -20 2 nd quarter 2020 - $18 -19 Use these as a place to start your expectations

DMC Margin (2009 to present)

The gift of DMC… • Through July has paid $0. 45 per cwt covered at a premium cost of $0. 15 per cwt Lbs Covered Premium + Admin Payments 2 million $3, 100 $8, 513* 5 million $7, 600 $21, 283* *Includes 6. 2% reduction for sequestration

Had DMC Existed 2014 -2018… Lbs Covered Premium + Payment* Net Gain* Admin 1 million $8, 000. 00 $45, 238. 64 $37, 238. 64 2 million $15, 500. 00 $90, 477. 29 $74, 977. 29 3 million $23, 000. 00 $135, 715. 93 $112, 715. 93 4 million $30, 500. 00 $180, 954. 57 $150, 454. 57 5 million $38, 000. 00 $226, 193. 21 $188, 193. 21 *Not exact as I just used a 7% estimated reduction for sequestration

25% Discount for long-term signup • Year-to-year offers more flexibility, but… • $9. 50 coverage would have paid in 9 out of 10 years from 2009 -2018 – 2014 was only exception • $9. 50 coverage would have paid more than 10 times the premium • The question – would I want $9. 50 three times from 2020 to 2023?

DMC Margin (2009 to 2018)

DMC Margin (2009 to 2018) - + + -

Impact of the New Class I Mover Calculation

Adv. Class III vs. Adv. Class IV (2010 to 2018) Previous Formula: use the higher New Formula: average + $0. 74

Class I Mover (2010 to 2018) Previous Formula: $10. 19 New Formula: $10. 24

Potential for Organic Dairy Production John T. Allison, MS 2019 Funded by USDA-NIFA

Project Background • Funded by USDA-NIFA to examine forages within organic grazing system • Math programming model developed – Least cost feed ration – Small scale organic dairy farm • Examined forage species mixtures within system • Evaluated profitability at different production levels

Model Organic Dairy Farm • Organic dairy with potential to sell hay • 50 medium / large dairy cow operation – Holstein crosses, 1, 300 lb • • • 100 acres, 25 suitable for cropping 2 employees working 50 hours per week 4 pasture mixes considered for grazing Organic feed purchased to balance ration Examined 40, 45, 50, and 55 lbs per day

Take Home Message • Potential for organic profitability – Transition is the real cost – 45 lb production level, $18 milk, $31 K annual loss • Benefit largely to early adopters – Organic milk prices have been dropping • Forage is key component to program – Perennials show cost superiority • Supplemental feeding increased profitability

Contact Information Kenny Burdine University of Kentucky Agricultural Economics (859) 257 -7273 kburdine@uky. edu Twitter: @KYCattle. Econ