Transcript THE NATIONAL PROGRAM ON DAIRY MARKETS AND POLICY MPP-Dairy Update • • • • Overview of margin forecast for the year ahead Updates to MPP-Dairy Decision Tool Understanding.

THE NATIONAL PROGRAM ON DAIRY MARKETS AND POLICY
MPP-Dairy Update
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•
•
•
Overview of margin forecast for the year ahead
Updates to MPP-Dairy Decision Tool
Understanding financial risks farmers face
Demonstrate new “Advanced Features” of decision tool
14.0000
Jul-15
Apr-15
Jan-15
Oct-14
Jul-14
Apr-14
Jan-14
Oct-13
Jul-13
Apr-13
Jan-13
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
Oct-10
Jul-10
Apr-10
Jan-10
Remember When…
All Milk Price
26.0000
24.0000
22.0000
20.0000
18.0000
16.0000
MPP Ration Value
$16.00
$14.00
$12.00
$10.00
$8.00
$6.00
$4.00
$2.00
$0.00
2000
2002
2004
2006
Corn
2008
SBM
2010
Alfalfa
2012
2014
Annual MPP Margin
MPP Margin
$14.00
Highest Margin
Ever!
$12.00
$10.00
$8.00
$6.00
$4.00
$2.00
$0.00
2000
2002
2004
2006
2008
2010
2012
2014
Millions of Pounds
Average Daily U.S. Milk Production
Percent Change in U.S. Milk Production
A Tale of Two Regions…
Worst CA Drought in 1200 Years
Comparative Feed Cost Data
Wisconsin
California
• Price of Hay = $150
• Price of Corn = $3.47
• Price of SBM = $370
• Price of Hay = $260
• Price of Corn = $5.01
• Price of SBM = $420
52.00
Jul-15
Apr-15
Jan-15
Oct-14
Jul-14
Apr-14
Jan-14
Oct-13
Jul-13
Apr-13
Jan-13
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
Oct-10
60.00
Jul-10
Apr-10
Jan-10
Average Daily Pounds of Milk per Cow
Impact of Feed Costs
70.00
68.00
66.00
64.00
62.00
California
Wisconsin
58.00
56.00
54.00
$12.00
May-15
Mar-15
Jan-15
Nov-14
Sep-14
Jul-14
May-14
Mar-14
Jan-14
Nov-13
Sep-13
Jul-13
May-13
Mar-13
Jan-13
Nov-12
Sep-12
Jul-12
May-12
Mar-12
Jan-12
Nov-11
Sep-11
Jul-11
May-11
Mar-11
Jan-11
$24.00
Nov-10
$26.00
Sep-10
Jul-10
May-10
Mar-10
Jan-10
All Milk Price
$28.00
Wisconsin
California
$22.00
$20.00
$18.00
$16.00
$14.00
Opinions Change Over Time
Opinions Change Over Time
MPP Margin Forecast
Opinion as of Sept 30, 2014
Opinion as of Sep 2, 2015
Consumer Confidence
We Need Exports!
Monthly Rolling Average Percent of Solids Exported
20.00%
18.00%
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
U.S. Versus International Prices
U.S. Versus International Prices
Global Dairy Trade Index
GDT Price Index
1,700
1,500
1,300
1,100
900
700
500
2013
2014
2015
U.S. Farm Milk Prices are Holding
Up Better than Most
$18.38
$13.61
$10.61
Exports Need a Boost
Other Factors
Around the World
Change in Milk Produc on
First 10 Months of 2014
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
U.S.
N.Z.
Aus.
E.U. 28
Can We Tap on the Brakes?
Strongest El Niño in 50 Years!
The Option to Producing Milk
Cull Cow Price
$130.00
$120.00
$110.00
$100.00
$90.00
$80.00
$70.00
$60.00
$50.00
$40.00
2008
2009
2010
2011
2012
2013
2014
2015
My Forecast…
• Our strong U.S. economy is helping consume dairy
products
• Dairy exports will become more of an issue in the
next few months
• I think that the MPP margin will be worse than
futures forecasts now suggest through the first half
of 2016
OLD APPROACH TO DAIRY RISK MANAGEMENT
I KNOW WHERE PRICES ARE GOING! – You selectively hedge only
when you disagree with the market consensus. Let’s be frank,
you’re speculating. 
DAIRY POLICY AS A PROFIT OPPORTUNITY – If subsidies are high,
sign up, otherwise skip it.
“LEARN RISK MANAGEMENT!” – Extension, DMaP, brokers and
policy makers all shoving risk management down your throat.
NEW APPROACH TO DAIRY RISK MANAGEMENT
FRAGILE – If your farm would have serious problems surviving a
major downturn in profit margins.
ROBUST – If your financial position and cost of production allow
you to withstand a very large and prolonged unexpected
downturn in profit margins.
ANTIFRAGILE – If your farm benefits from milk and feed price
volatility. For example, if you have very strong financial position,
low cost of production, and have protected against downside in
margins. Then as your competitors go out of business, you will
have an opportunity to buy their farm at a great price.
NEW APPROACH TO DAIRY RISK MANAGEMENT
Our goal today, is to give you a tool to answer one key question:
Is my farm fragile, robust, or antifragile?
To answer that question, you need to:
1)
Know your farm (costs of production, financials)
2)
Execute a ruthless stress-test analysis
NEW APPROACH TO DAIRY RISK MANAGEMENT
Our goal today, is to give you a tool to answer one key question:
Is my farm fragile, robust, or antifragile?
To answer that question, you need to:
1)
Know your farm (costs of production, financials)
2)
Execute a ruthless stress-test analysis
KNOW YOUR FARM: PLANS, COSTS AND FINANCIALS
FARM-SPECIFIC DASHBOARD: PRODUCTION & PRICES
 Basis tends to be lower in regions where costs of
production are lower.
MPP-DAIRY: INCOME OVER FEED COSTS MARGIN BASIS
3.00
2.00
1.00
0.00
-1.00
-2.00
-3.00
-4.00
-5.00
2007
2008
2009
Upper Midwest
2010
Texas
2011
Idaho
2012
California
2013
OTHER OPERATING COSTS
(EXCLUDING FEED, HERD REPLACEMENT, DEPRECIATION)
$9.00
$8.00
$7.00
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
$0.00
2007
2008
2009
Upper Midwest
2010
Texas
2011
Idaho
2012
California
2013
DASHBOARD: PRODUCTION & PRICES – KEY POINTS
 Historical average MPP-Dairy margin is approx. $8.50/cwt.
 Basis tends to be lower in western United States.
 Basis tends to be lower in regions where costs of
production are lower.
 Most dairies, across the entire country, will have MPPDairy cash-flow break-even point below $8.50/cwt.
KNOW YOUR FARM: PLANS, COSTS AND FINANCIALS
FARM-SPECIFIC DASHBOARD: FARM FINANCIALS
 Working capital per cow: Any losses will first be absorbed by
cash reserves or by utilizing operating lines of credit.
 Debt-to-Asset Ratio: If losses are deep and cannot be
absorbed by working capital, long-term debt will be
increased.
 Assets Per Cow: Farms will more land will be able to spread
losses over more assets.
NAME YOUR OWN PRICE (BE RUTHLESS)
NAME YOUR OWN PRICE (BE RUTHLESS)
KNOW YOUR FARM: PLANS, COSTS AND FINANCIALS
FARM-SPECIFIC DASHBOARD: RISK MANAGEMENT
Some common question include:
• Do I need to hedge if I use MPP-Dairy? How much?
• Should % hedged plus coverage percentage be lower than
total milk production?
• When should I hedge?
FARM-SPECIFIC DASHBOARD: RISK MANAGEMENT
FARM-SPECIFIC DASHBOARD: RISK MANAGEMENT
DASHBOARD: RISK MANAGEMENT – KEY POINTS
 MPP-Dairy and private risk management tools may be
combined to keep profitability, liquidity and solvency above
desired thresholds at least hedging costs.
Questions?