Livestock Gross Margin Insurance for Dairy
January & February 2012
Dr. Craig Thomas, MSU-Extension Educator
Genesee, Huron, Lapeer, Macomb, Oakland, St. Clair, Sanilac, Tuscola Counties
2012 Dairy Market Synopsis
• 2012 Class III futures prices: $16.89 (+$2.48 vs. 2011)• First half: $17.10 (+$3.52 vs. 2011)• Second half: $16.69 (+$1.46 vs. 2011)
• Commercial disappearance: +3.5% (+242% vs. trend)• Very strong export market (CY-10 12.8% of U.S. milk
production)• How will exports perform in 2012? USDA says -7.5% vs. 2011
• U.S. milk output: +2.7% last seven months (+175% vs. trend)• Cow numbers: 9.136 M (up 5K since July despite 34K CWT herd
rtmt)• Milk per cow: +3.0% since March 2011
• 2012 Outlook: there will be pressure to increase milk production with higher milk prices.• Higher feed costs (~+31% vs. last year)• Credit situation easing for most farms• Cow numbers likely to increase and milk per cow to remain
above trend
“Prediction is verydifficult, especially if it is about the future.”
-Neils Bohr
Never underestimate the ability of U.S. dairy farmers to produce milk when determined to do so…despite what obstacles CW say are in the way!
Market Milk
Market Feed
Ag Market Update Meetings
• Meet 8 times per year (no meeting in Apr, Jul, Sep, Nov).
• Meet in Sandusky and St. Johns• Meet from 10 AM till noon• Outlook and strategies for all major ag markets
(corn, soy, wheat, feeds, dairy, beef, energy, etc.)• First meeting free; fees for regular attendance• Jim Hilker, MSU-Extension Specialist• Craig Thomas, MSU-Extension Educator
83 lbs/cow per day (~27,400 lbs/year)
Is It Worth Your Time? This is real! 2009
1,530 cow dairy
Primary marketing tool: forward contracts Marketed 38.4% of total milk production Marketing high: $17.44; low: $14.88
Marketing average: $16.92
Farm’s 2009 average Class III price: $13.46/cwt
Is It Worth Your Time? This is real! 2009
2009 U.S. average Class III price: $11.36/cwt
Difference: +$2.10/cwt (+$5.56 on mkt milk) Effect: +$1.85/cow per day
Effect: +$2,405 for the herd per day
Effect: +$878,000 for the farm that year
Net Effect
Same as if every cow on the farm produced 12 lbs milk per day more at an
increase of only 12¢/cwt.
Is It Worth Your Time?
Cumulative ProbabilityClass III Price 1995-Present
R² = 0.9983
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Cum
ula
tive
Pro
bab
ility
Class III/BFP Milk Price ($/cwt)
Cumulative Probability DistributionBFP/Class III Price, 1995-2011
2012$15.90
85th Percentile
2011$16.89
89th Percentile
Min = $8.57Max = $21.38Ave. = $13.20StDev = $2.77
Settlement Prices as of 2/9/11
$6.00
$8.00
$10.00
$12.00
$14.00
$16.00
$18.00
$20.00
$22.00
Pri
ce ($/
cwt)
Month/Year
BFP/Class III Price1995-2011
BFP/Class III Price Average +1 Stdev -1 Stdev
Min = $8.57Max = $21.38Ave. = $13.20StDev = $2.77
Dec-98
$17.34
92nd Sep-99
$16.26
87th
Jul-01$15.9
885th
May-04
$20.58
99th
Jul-07$21.3
8100th
Class III Price 1995-Present
What do all these peaks have in common?
Class III Price 1995-Present
$9.74$10.42
$11.36 $11.42$11.83 $11.89 $12.05
$12.43$13.10 $13.39 $13.48
$14.05 $14.20 $14.41
$15.39
$17.44$18.04
$8
$10
$12
$14
$16
$18
$20
2000 2002 2009 2003 1995 2006 1997 1999 2001 1996 2011 2005 1998 2010 2004 2008 2007
Year
Year
Annual Average BFP/Class III Price1995-2011
$10.00
$11.00
$12.00
$13.00
$14.00
$15.00
$16.00
$17.00
$18.00
$19.00
$20.00
$21.00
Pri
ce ($/
cwt)
Date
CME Class III Futures Settlement Price Averages
2009 2010
6/16/082009 Ave.
$20.6599th+
Percentile
Class III Futures Prices 2009/2010
6/16/082010 Ave.
$19.8197th
Percentile
Class III Prices2011 & 2012
R² = 0.9983
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Cum
ula
tive
Pro
bab
ility
Class III/BFP Milk Price ($/cwt)
Cumulative Probability DistributionBFP/Class III Price, 1995-2011
2012$15.90
85th Percentile
2011$16.89
89th Percentile
Min = $8.57Max = $21.38Ave. = $13.20StDev = $2.77
Settlement Prices as of 2/9/11
Greed
Hope
Fear
The End