Transcript No Slide Title

DAIRY SITUATION
AND OUTLOOK
Blimling and Associates, Inc.
February 10, 2009
Phil Plourd ([email protected])
Bill Curley ([email protected])
Duane Banderob ([email protected])
Mark Morningstar ([email protected])
800-726-9928
The Fine Print
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©2009, Blimling and Associates Inc.
This information is carefully compiled but not guaranteed
to be complete or free from error, nor does it constitute a
solicitation to buy or sell futures/options contracts
Past performance is not indicative of future results
This has been prepared for the exclusive use of clients of
Blimling and Associates, Inc. Reproduction in part or in
whole without written permission is strictly prohibited
Want a copy of a slide or graphic? Contact Dallas Sipes
Chapman at 800-726-9928 or by email at
[email protected]
2
Cheese: 6-Year Lows
3
Butter: Melted
4
Global Prices
CHEDDAR: US vs OCEANIA
GLOBAL BUTTER PRICES
$2.60
$2.20
US Block
US
Oceania
$2.40
Oceania
$2.00
EU
$2.20
$1.80
$2.00
$1.60
$1.80
$1.40
$1.60
$1.20
$1.40
weekly
source: CME, USDA/AMS
$1.00
$1.20
$0.80
$1.00
30-May
4-Jan 8-Feb 14-Mar 18-Apr 23-May 27-Jun 1-Aug 5-Sep 10-Oct 14-Nov 19-Dec 23-Jan
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27-Jun
25-Jul
22-Aug
19-Sep
17-Oct
14-Nov 12-Dec
9-Jan
NFDM and Whey
NONFAT DRY MILK
DRY WHEY
$2.00
$0.50
AMS Central
$0.45
NASS
EU
$1.75
$0.40
Feb-Dec Futures
$0.35
$1.50
$0.30
$1.25
$0.25
$0.20
$1.00
AMS Central
NASS
Europe
Feb-Dec09 Futures
$0.15
Oceania
$0.10
$0.75
Jan 4 Feb 15 Mar 28 May 9 Jun 20 Aug 1 Sep 12 Oct 24 Dec 5 Jan 16
Jan 4 Feb 15 Mar 28 May 9 Jun 20 Aug 1 Sep 12 Oct 24 Dec 5 Jan 16
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Oceania Exports
1,400
1,200
1,000
2007 to 2008 Change
Butter: -18% (205 MM lbs)
Cheese: - 7% (80 MM lbs)
Powder: -15% (439 MM lbs)
US +135 MM lbs
US +80 MM lbs
US +207 MM lbs
800
600
400
200
1,000 MT
Butter Exports
Cheese Exports
2005
2006
2007
2008
Year ending May/Jun
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SMP/WMP Exports
Exports: Crucial…
EXPORTS AS % OF MILK PRODUCTION (JAN-NOV)
7%
Source: USITC data; Blimling estimates
6%
5%
4%
3%
2%
1%
0%
2000
2001
2002
2003
2004
2005
2006
2007
2008
0.6%
0.7%
0.7%
0.7%
0.8%
0.7%
0.9%
1.2%
1.6%
NDM/SMP 1.4%
1.0%
0.7%
1.3%
2.3%
3.5%
3.4%
2.7%
4.7%
Cheese
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… And Exports Waning
US CHEESE EXPORTS
NDM/SMP EXPORTS
35
120
million pounds
source: USITC
30
million pounds
source: USITC
100
25
80
20
60
15
10
40
5
20
-
Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov
2006
2007
2008
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Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov
2006
2007
2008
November export performance was off significantly
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Cheese exports -11%
NDM exports -44%
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Back to Net Importer
BUTTER/BUTTERFAT IMPORT-EXPORT DIFFERENTIAL
25
20
15
10
5
(5)
(10)
(15)
(20)
million pounds
Imports: butter, amf, food prep
Exports: butter, amf
source: USTIC; Blimling estimates
(25)
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Nov-08
Sep-08
Jul-08
May-08
Mar-08
Jan-08
Nov-07
Sep-07
Jul-07
May-07
Mar-07
Jan-07
(30)
Export Outlook
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Milk in New Zealand, down 3% in 2008 is
trending 3 – 5% higher in 2009
EU private storage opens early and export
subsidies revived
A 50% reduction in US exports seem likely
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In cow terms ~350,000 head
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Demand better here?
FOOD/DRINKING PLACE SALES
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10%
8%
6%
4%
2%
0%
year-over-year change
source: US Census Bureau
-2%
-4%
2005
2006
2007
2008
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Restaurant sales
(in $ terms) were
negative on a yearover-year basis in
December –
something not seen
since at least 1992
Belt-Tightening
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Dairy product
performance
at retail was
soft over the
last four
weeks of
2008 –
suggesting
less extensive
entertaining
for the
holidays
RETAIL SALES: PERIOD ENDING DECEMBER 27
Canned Soup
Frozen Entrees
Refigerated Entrees
Bread/Baked Goods
12 Weeks
4 Weeks
Measured by Volume
Source: JPMorgan/AC Nielsen data;
excludes Wal-Mart
Frozen Pizza
Sour Cream
Yogurt
Butter
Ice Cream
Cheese
Fresh Milk
-6%
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-5%
-4%
-3%
-2%
-1%
0%
Reformulation
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Dairy not immune from rash of cost-savings and
down-sizing measures
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McDonald’s McDouble: ~20 MM lbs cheese
Thinner slices: 1/3 less demand
Trade dairy for starch in sauces
Cheese on pizzas
Ice cream containers
Changes still being implemented
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Supply “Problem”
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US industry benefited from Oceania supply issues
and strong global demand
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Absent robust exports and amid soft domestic
conditions it is our belief that US milk supply is
running 3-5% ahead of needs
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Producers responded accordingly by adding cows
In cow terms: 350,000, 400,000, 500,000 too many
How long will it take to “right-size” the industry?
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98 Jan
Apr
Jul
Oct
99 Jan
Apr
Jul
Oct
00 Jan
Apr
Jul
Oct
01 Jan
Apr
Jul
Oct
02 Jan
Apr
Jul
Oct
03 Jan
Apr
Jul
Oct
04 Jan
Apr
Jul
Oct
05 Jan
Apr
Jul
Oct
06 Jan
Apr
Jul
Oct
07 Jan
Apr
Jul
Oct
08 Jan
Apr
Jul
Oct
thousand head
The Build Out
US Cows
9,350
9,300
9,250
9,200
Largest
dairy herd
since 1996
9,150
9,100
9,050
9,000
8,950
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How Long?
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Good argument can be made for “the low period is not
long”
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Economic pain is more pronounced than anything seen before
Larger producers in the West would seem to be most vulnerable
(buy more feed; lowest milk prices)
Bankers likely to be less lenient today given overall financial
environment
World market “bid” might be closer/deeper than currently
believed
Government intervention—although unlikely—is a possibility
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Implied Margins
MILK:FEED RATIO vs "IMPLIED MARGIN OVER FEED"
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On-farm
margins have
collapsed to
historically
low levels
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8
7
6
5
4
3
2
1
-
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009 F
Ratio
2.45
2.38
3.34
3.59
3.06
3.39
2.60
2.62
3.10
3.24
2.56
2.80
1.94
1.68
Margin
6.82
6.06
7.84
7.48
6.13
7.68
5.69
5.91
8.03
7.66
6.05
9.28
6.40
5.18
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California
fairing worse
due to
dependence
on NFDM
“The Slope of Hope”
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Some may be looking at the shape of the 2009 futures curve and thinking that the
“low period” is going to be brief
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Of course, if this thought is widespread, supply-side response is theoretically deferred
Futures market has typically carried decent premiums in the distant months when spot prices
are low
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How Long?
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Good argument can be made for “the low period will
be extended”
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Magnitude of “over-supply” and “under-demand” problem
is unprecedented and global in nature
Supply-side inertia is always greater than generally
expected
Is the futures market curve giving producers (and their
banks) a sense of false hope?
MILC payments will be sizeable and will help keep some
production on line
What alternatives to producers (and their banks) really
have?
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Pipeline is Full
Source: USDA, Blimling and Associates estimates
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Same Slope; New Day
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Cheese Outlook
CME BLOCK CHEDDAR FORECAST
2009 AVERAGE
$1.70
Forecast
$1.30
$1.60
$1.50
$1.40
Futures
$1.41
$1.30
$1.20
$1.10
Forecast
Futures
$1.00
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
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Butter Outlook
CME BUTTER FORECAST
2009 AVERAGE
$1.50
$1.45
Forecast
$1.25
$1.40
$1.35
Futures
$1.24
$1.30
$1.25
$1.20
$1.15
$1.10
$1.05
Forecast
Futures
$1.00
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
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NFDM Outlook
NASS NDM FORECAST
2009 AVERAGE
$1.00
NASS NDM
Futures
Forecast
$0.84
$0.95
$0.90
$0.85
$0.80
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
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