2016 Dairy Situation & 2017 OutlookWisconsin Agricultural Outlook Forum

Mark Stephenson, Ph.D.Director of Dairy Policy Analysis

High Impact Trends!

0

10

20

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50

60

U.S.PerCapitaConsumption

AmericanCheese OtherCheese Yogurt Butter

High Impact Trends!

0

50

100

150

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250

300

U.S.PerCapitaConsumption

FluidMilk AllIceCream

Good News

500

520

540

560

580

600

620

640

MilkEquivalent—AllProducts

We add almost 2 pounds per capita per year.

High Impact Trend!

250,000

260,000

270,000

280,000

290,000

300,000

310,000

320,000

330,000

2000 2002 2004 2006 2008 2010 2012 2014

1000sPeople

U.S.Population

We add almost 3 million people per year

High Impact Trend!

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

PoundsofMilkperCowperYear

Very linear—about 284 pounds per cow per year

Milk per Cow per Day

56

57

58

59

60

61

62

63

64

65

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

MilkperCowperDay

2012 2013 2014 2015 2016

Number of Cows

9,150

9,200

9,250

9,300

9,350

9,400

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

1000sofCow

s

2012 2013 2014 2015 2016

Sustained Growth Needs Exports!

The Importance of Trade

Profit is a Market’s Signal to Produce More

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

2000 2002 2004 2006 2008 2010 2012 2014 2016

MPPMargin

MPP Ration Value

$0

$2

$4

$6

$8

$10

$12

$14

$16

2000 2002 2004 2006 2008 2010 2012 2014 2016

Corn SBM Alfalfa

Percent Change in U.S. Milk Production

2.6%

-1.7%

4%

-1.3%

9%

1.6%-3.3%

4.2%

3.1%

2.1%

-1.6%

2.3%

2.9%

8.3%

-3.3%

3.6%

0.1%

0.8%

-3.3%

2.4%

0.5%

2.7%

4.3%

7%

-3.6%

4.9%

0.7%

-7.7%

-1.9%

0.2%

6.6%

-8.2%

-14.1%

-6.3%

3.1%

-3.1%

-2.8%

-14.5%

-4.5%

-3.7%

6.6% 2.2%1.4%

-2.3%

-0.6%

-5.2%

3.4%

-2%

-10.7%-0.6%

Northern States Making More Milk?Change in Milk Production—First 3 Qtrs of 2016 compared to 2015

Consumer Confidence

0

20

40

60

80

100

120

140

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

ConsumerConfidence

Consumer Confidence

0

20

40

60

80

100

120

140

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

ConsumerConfidence

Present

Expectations

U.S. Unemployment Rate

4.0

5.0

6.0

7.0

8.0

9.0

10.02003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Percent

UnemploymentRate

Economic Indicators

-3

-2

-1

0

1

2

3

0

10

20

30

40

50

60

70

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

U.S.EconomicIndicators

ISM-PMI LeadingIndex,US

Dairy Products are a Good BuyBLS —Dairy and Related Products

100

120

140

160

180

200

220

240

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

U.S. Versus International Prices

U.S. Versus International Prices

U.S. Versus International Prices

U.S. American Cheese Stocks

550,000

600,000

650,000

700,000

750,000

800,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

1000sPounds

AmericanCheeseStocks

2012 2013 2014 2015 2016

Exports Need a Boost

U.S. Versus International Prices

U.S. Butter Stocks

50,000

100,000

150,000

200,000

250,000

300,000

350,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

1000sPounds

ButterStocks

2012 2013 2014 2015 2016

Global Dairy Trade Index

500

600

700

800

900

1,000

1,100

1,200

1,300

1,400

1,500

1,600

1,700

2013 2014 2015 2016 2017

GDTPriceIndex

Other Factors

U.S. Farm Milk Prices Held Up Better than Most

U.S. Farm Milk Prices are Holding Up Better than Most

U.S. farm gate prices were about $17-18 while EU prices were about $13-14 and NZ as low as $10 per cwt.

Much bigger price spread than is usual—Why?U.S. had strong domestic economy to absorb lost export sales

EU used market intervention purchases to support prices

NZ just let the price fall to clear markets

Output Down from Major Exporters

Price Cycles

0

2

4

6

8

10

12

14

16

18

1 5 9 13 17 21 25 29 33 37 41 45

MPP

Mar

gin

Months from Start of Cycle

MPP Margin of Recent Price Cycles

2001-2004

2004-2007

2007-2011

2011-2014

2014-2017

My Price Forecast

Intervention Stocks Overhang Markets

The Alternative to Producing Milk

$40

$50

$60

$70

$80

$90

$100

$110

$120

$130

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

CullCowPrice

My Forecast…Our relatively strong U.S. economy is helping consume dairy products

World supply has slowed allowing world demand to begin to pull down on stocks

World prices are recovering faster than U.S. pricesOur prices never fell as farThis is a supply driven recovery—not a demand recoveryHow fast will the rest of the world respond with production?

I’m more optimistic than USDA about prices in 2017I have class III up $2.50 and class IV up $3.40That should bring a WI All Milk Price up about $2.45

I am also forecasting WI milk production to be up by less than it has been this year. But, it will exceed the 30 billion pound goal.

Questions?