Dr. Cameron Thraen, State Extension Specialist, Dairy Market and Policy, The Ohio State University
By the time you are reading this, it will be well known that the United States Super Committee of 12 was not able to come to agreement on tax increases and federal program cuts by the imposed deadline of November 23. (Should pigs fly, then you can move to the next section). By not coming to agreement, this also means that the rapid start 2012 Farm Bill, including new legislation for dairy, will have evaporated and along with it any program for dairy margin insurance and dairy stabilization programs. With the 2012 election year now at full throttle, the expectation by those who watch this political sausage making process very closely is that there will not be a 2012 farm bill, or new dairy legislation until after the 2012 elections. That means 2013. We shall see.
Livestock Gross Margin-Dairy Insurance Update
On the Livestock Gross Margin (LGM) dairy front, the last sales period was November 18, 2011. This date was selected to salve those who, after waiting since March 2011 to purchase additional LGM dairy contracts, found that they could not do so at the October sale date. This was due to USDA Risk Management Agency (RMA) computer servers being overrun with agent purchase requests.
For the November 18 sale, USDA RMA announced an additional $7 million in funds. My sources tell me that these were completely exhausted at the November 18 sale, and as such, there are not funds available to support the sale of LGM-Dairy contracts for December. The USDA RMA could move funds from the other livestock commodities and make these available to dairy to support more contract sales in December. This is currently $6 million available in these other accounts.
A few facts from the LGM-Dairy report (11/21/2011):
1) Wisconsin dairy producers lead the nation with 236 policies purchased covering 7.962 million cwt at a premium cost to producers of $2.017 million and U.S. taxpayers $1.739 million. Average contract size is 33,741 cwt.
2) The top five states for LGM-Dairy sales are Wisconsin, Minnesota, Pennsylvania, Michigan, and Vermont (the same top five in 2011). These five states combine for 626 policies out of 903 (69.3%).
3) Total premium paid by producers equals $10.3 million, with an additional $8.9 million in subsidy (46%) paid by taxpayers.
4) Ohio LGM-Dairy contract sales equal 5 contracts on 148,000 cwt of milk at a producer cost of $38,344. The subsidy is $34,820.
5) For the United States, there are 903 contracts from 32 states covering 40.7 million cwt at a producer cost of $10.33 million and a taxpayer subsidy of $8.9 million. The total insured contract liability for the U.S. is $707.9 million dollars. The margin insured per cwt is $17.39.
This is very similar to what took place in the 2011 insurance year. After the LGM-dairy contract was modified to include a premium subsidy of up to 50%, and made effective with the December 2011 contract sale, the available funds to support this subsidy was exhausted in just four sales months. Data comparing 2011 with 2012 show the following: Total contracts sold in 2011 was 1,226; total milk insured 46.2 million cwt; total producer cost $14.2 million; and total subsidy $10.7 million. In 2011, the liability per cwt of insured milk was $16.67.
Dairy Commodity and Milk Price Forecast for November 12, 2011 Through April 14, 2012
My forecast for dairy commodity prices, (http://aede.ag.ohio-state.edu/programs/OhioDairy/BayesForecasts/probability_distribution_forecast.htm) milk component values and the Class 3 price shows an increasing probability of a butter price decline and a slight softening for cheese, whey, and nonfat dry milk in the coming 24 weeks, November 12, 2011 through April 14, 2012 (NASS reported prices, not Chicago Mercantile Exchange prices). As a result, butterfat will fall from the current $2/lb to $1.80, protein (cheese) will increase from the current $2.90 to 3.10/lb; nonfat solids(NDM) will remain fairly stable at the current $1.30 and possibly rising to $1.40/lb; and other solids (whey) will decline slightly from the current $0.44 to 0.38/lb. These prices will give a Class 3 milk price decline only slightly from the current price of $18.42 (November 26 estimate) to $17.95 in April 2012.
Of course, what happens in Europe with the Eurozone financial markets and here at home with the budget impasse may have a major impact on the demand for dairy products and the outlook for market prices.
Ohio Dairy Web 2011
If you have been looking for the Ohio Dairy 2011 website and unable to connect, this is because it was moved. Recent changes to the College of Food, Agriculture and Environmental Sciences (CFAES) and Agricultural, Environmental, and Development Economics (AEDE) website addresses have necessitated a new address for my Ohio dairy website. The most reliable link to reach the dairy website is to bookmark the AEDE department's new web address and then link to the dairy website by selecting "Programs and Research / Ohio Dairy Web". The new AEDE website address is: http://aede.osu.edu. The direct link to Ohio Dairy Web 2011 is currently http://aede.ag.ohio-state.edu/programs/OhioDairy/ .