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Parlor to Plate – July 25, 2024
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In the latest edition of the Parlor to Plate dairy podcast from Ever.Ag Insights, our all-star panel discusses dairy expansion. New plants are coming online, but will there be enough milk to fill them? Amid high interest rates and tight heifer inventories, is there any room for farms to grow? And could lower grain and feed prices spur additional milk production?
Join host Erica Maedke and panelists Jon Spainhour, Colin Kadis and Britt O’Connell for a spirited discussion.
Questions or comments? Topics you’d like to hear us discuss? Contact us at [email protected].
Show Transcript
(Transcript auto-generated)
00;00;00;10 – 00;00;08;21
VOICEOVER
Future trading involves risk and is not suitable for all investors. Content provided in this segment is meant for educational purposes and is not a solicitation to buy or sell commodities.
00;00;08;24 – 00;00;29;12
ERICA
Hello. Welcome to Parler to Play, a weekly podcast from Everyday Insights dedicated to offering listeners enlightening discussion and actionable intelligence about dairy markets. I’m your host, Eric Mankey. We’re excited to have you along. And if you like what you hear, please like, subscribe and tell a friend or two. Today it is Thursday, July 25th, around 1:00 central time.
00;00;29;12 – 00;00;54;19
ERICA
A quick rundown of the markets. See me Black Cheddar at 193 per pound. We are up $0.06 from a week ago. Barrels also up $0.06 at 197. Spot butter 309. That’s down a penny from last week. Spot nonfat dry milk closed at dollar 23. That’s up $0.04. On the grain side of things, we’re looking at nearby corn at 404 per bushel, up $0.13 from this time last week.
00;00;54;19 – 00;01;20;05
ERICA
August. Soybeans at 1111 per bushel, also up $0.13. And meal at 343 per ton, up six bucks. It’s a new week. Another all star panel from the financial services team. We have, first off, Brit O’Connell, who helps grain growers manage risk. She’s out of our Platteville office. John Spain Power helps processors and users manage risk. Based in our Chicago office.
00;01;20;05 – 00;01;25;23
ERICA
And Colin Kate helps dairy producers across the United States manage risk. How are we today, team?
00;01;25;25 – 00;01;27;07
BRITT
Excellent. It’s a beautiful day.
00;01;27;12 – 00;01;28;14
COLIN
You’ve been great. Thanks, Erica.
00;01;28;16 – 00;01;50;15
ERICA
So today I wanted to focus on milk production and the prospects for future growth. So on Tuesday, the USDA released its monthly milk production report. U.S. milk output was down 1% year over year. It was only the Upper Midwest that registered any sort of growth. At the same time as we look at our forward calculations for margin over feed.
00;01;50;16 – 00;02;13;23
ERICA
So what’s the profitability look like on the dairy? We estimate DMC margins for the next 12 months to average well over $12 100 day. Now for context, historically, $9 to $10 is about to break even level on average. So to see margins as strong as this. And they broke through that $11 threshold back in February. And they’ve been an uptrend ever since.
00;02;13;24 – 00;02;21;11
ERICA
So Brett I want to start with you. The grain side of things really built out the cost foundation. How are you seeing things shape up this season?
00;02;21;15 – 00;02;42;27
BRITT
Erica, it’s certainly been a welcome relief to anybody who’s a grain buyer to see these prices slide the way that they have coming off of a couple of years of really strong prices. And so this has given folks an opportunity to buy corn and soybean meal and buy products at prices they haven’t seen in nearly five years. And we have been encouraging producers to do that very thing.
00;02;42;27 – 00;03;04;23
BRITT
And there’s really two elements that kind of go into that decision. The first is when we look at things from just a pure price perspective, we are flirting with prices that we haven’t seen in nearly five years, and we knew that the funds had been aggressively selling this market and at some record short positions. And then secondary to that, we were also in a place where dairymen were talking about that very thin margin.
00;03;04;24 – 00;03;27;10
BRITT
They were talking about how at today’s prices with feed and milk, that they were able to pencil in a positive margin. And so for those folks, it was absolutely essential that we did something on feed alongside of what they were doing on the milk side to make sure that they were able to project those margins forward. So we have absolutely been encouraging guys, look at attention to what’s going on in the markets, because things are generally moving in your direction now.
00;03;27;10 – 00;03;46;20
BRITT
I think we’re going to see a bit of a choppy sideways trade here. It appears that 4 or 3 is going to hold the mark, at least for now. In December, corn and soybean meal went down and flirted with that 310 territory. We bounce back, you know, 20 bucks a ton there since. But I think there’s still going to be some opportunities, as there are good crop condition scores being floated out there.
00;03;46;20 – 00;03;54;23
BRITT
And we still have pretty frothy balance sheets on both the corn and soybean side. So for buyers, there’s definitely opportunity present here.
00;03;54;29 – 00;03;59;26
ERICA
How long have your dairy producers been asking any questions about feed in particular?
00;03;59;27 – 00;04;14;25
COLIN
I would say so, Erica. I mean, I think the dairy producers that are looking at the futures curve are excited by what it looks like. And also, you know, they see the low prices and they say, hey, Ken, regardless of my opinion on milk, should I just be doing something as the margin for the rest of this year does look good?
00;04;14;25 – 00;04;18;24
COLIN
So I think the dairy farmers are pretty excited about where he’s at at the moment.
00;04;19;00 – 00;04;34;09
ERICA
John, let’s turn to the revenue side. Milk prices, new capacity coming online. I think the question that often gets asked is will there be enough milk? And so I guess I want to get your take as a veteran market analyst, how you see milk prices shaping up going forward.
00;04;34;12 – 00;04;57;25
JON
Well, Erica, I guess it comes down to what is theory and what becomes reality. If we look out here on the theoretical side of things, not only is there, you know, a pretty decent margin here on the spot basis and has been okay leading up to this point, but there’s also a pretty nice margin moving out on the curve on both the class three and class four versus that feed.
00;04;57;26 – 00;05;21;06
JON
So from a theoretical standpoint and a historical standpoint, that is very much an incentive to make milk. Now again, that’s the theory. We’ve had a lot of people come back to us and say, well that’s not going to happen because right. Or it won’t happen this time because and even within that, I think most people are willing to say, okay, yeah, eventually milk production will grow, but how quickly can it grow?
00;05;21;06 – 00;05;46;17
JON
And when can I expect that new milk production? I’m not necessarily willing to commit to any of those ideas. And right here on the front end, certainly anything can happen. We can always run into a heat wave or a bird flu, something that can affect milk production in the interim. But I think longer term, the setup for more milk production is certainly there here in the US, as well as when we look over to Europe as well.
00;05;46;20 – 00;05;52;07
JON
I do think that we should not be surprised, at the very least, if we see milk production start increasing.
00;05;52;09 – 00;06;12;23
ERICA
Let’s turn it to you, because we’ve heard from Bret on the cost side, John talked a little bit about the revenue side and leaned into the fact that these margins are looking good. So as folks are thinking about expansions on farms, do you have a sense for the viability of that? How realistic that is, and just a general sense from producers.
00;06;12;26 – 00;06;28;15
COLIN
Erica, I would say, you know, if we were having this conversation two years ago, there was a lot of pessimism. I mean, there was a lot of milk based programs were, you know, installed during Covid. And it kind of seemed like, hey, this is the future. You know, we have the technology, we have the capital. You’re not in.
00;06;28;20 – 00;06;47;22
COLIN
It’s too late. I’m not sure that people have the same take today. In the last six months, we’ve seen numerous space programs just kind of fall apart, or at least relax how stringent they are. In the northeast, we’ve seen, you know, additional processing capacity that has come to Idaho, which is maybe made milk a little bit tighter. We’ve seen it in the spot milk values, etc..
00;06;47;22 – 00;07;00;11
COLIN
And then also, if you look at the Midwest, you know, the Midwest has kind of been on its own in terms of how productive it’s been. A lot of that has been cow numbers rather than milk per cow. So it seems like there’s an opportunity to expand for those that want it.
00;07;00;14 – 00;07;21;07
ERICA
So I heard a banker at the Wisconsin Dairy Products Association Dairy symposium talking about. Many producers do have plans on the books. He suggested that interest rates are holding a lot of folks back. Would you feel in your experience that that’s a big factor in that decision making? Or is it back to your base access point and just trying to find a market from extra milk?
00;07;21;10 – 00;07;37;13
COLIN
110%. I think that’s true. I think it shows up in two big ways. The first one, the cost to build the majority of the structures that we are building today has in some cases doubled. So the amount of debt that someone would have to take on to milk the same number of cows is increased. If they were buying those cows, that price doubled as well.
00;07;37;14 – 00;07;53;09
COLIN
So that part is a problem and it’s against a higher interest rate. I guess the other one we’ve heard a lot about, there aren’t that many cows out there. And well, it’s probably never a good idea to bet against the American Dairy men’s ability to make more milk. It does seem like it’s going to be tougher, especially with the summer heat here.
00;07;53;10 – 00;07;59;20
COLIN
So expansion cows might have to wait as much as at least three, but probably six and additional months after.
00;07;59;23 – 00;08;15;23
ERICA
A big thank you to Brett, John and Collin for joining me on today’s episode and sharing your insights with our listeners. Thank you, as always to our media team for mixing and mastering. Thank you to the listeners for joining us today. If you like what you hear, subscribe on your favorite app. And if you’d like to learn more about how we help people manage risk.
00;08;15;26 – 00;08;19;16
ERICA
Contact us at Insights at ever Dot egg.
Disclaimer: TRADING FUTURES AND OPTIONS ON FUTURES INVOLVES SIGNIFICANT RISK OF LOSS AND MAY NOT BE SUITABLE FOR EVERYONE. THEREFORE, CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THE INFORMATION AND COMMENTS CONTAINED HEREIN ARE PROVIDED BY EVER.AG AS GENERAL COMMENTARY OF MARKET CONDITIONS. THIS INFORMATION SHOULD NOT BE INTERPRETED AS TRADING ADVICE OR RECOMMENDATION WITHOUT FURTHER DISCUSSION WITH YOUR EVER.AG ADVISOR. THIS IS A MATTER OF SOLICITATION.
The following music was used for this media project:
Music: Funky Intro 29 by TaigaSoundProd
Free download: https://filmmusic.io/song/9520-funky-intro-29
License (CC BY 4.0): https://filmmusic.io/standard-license
Artist website: https://linktr.ee/taigasoundprod
© Ever.Ag 2023, confidential and proprietary.
The post Parlor to Plate – July 25, 2024 appeared first on .
View all episodes
By Ever.Ag
5
55 ratings
Listen Now
In the latest edition of the Parlor to Plate dairy podcast from Ever.Ag Insights, our all-star panel discusses dairy expansion. New plants are coming online, but will there be enough milk to fill them? Amid high interest rates and tight heifer inventories, is there any room for farms to grow? And could lower grain and feed prices spur additional milk production?
Join host Erica Maedke and panelists Jon Spainhour, Colin Kadis and Britt O’Connell for a spirited discussion.
Questions or comments? Topics you’d like to hear us discuss? Contact us at [email protected].
Show Transcript
(Transcript auto-generated)
00;00;00;10 – 00;00;08;21
VOICEOVER
Future trading involves risk and is not suitable for all investors. Content provided in this segment is meant for educational purposes and is not a solicitation to buy or sell commodities.
00;00;08;24 – 00;00;29;12
ERICA
Hello. Welcome to Parler to Play, a weekly podcast from Everyday Insights dedicated to offering listeners enlightening discussion and actionable intelligence about dairy markets. I’m your host, Eric Mankey. We’re excited to have you along. And if you like what you hear, please like, subscribe and tell a friend or two. Today it is Thursday, July 25th, around 1:00 central time.
00;00;29;12 – 00;00;54;19
ERICA
A quick rundown of the markets. See me Black Cheddar at 193 per pound. We are up $0.06 from a week ago. Barrels also up $0.06 at 197. Spot butter 309. That’s down a penny from last week. Spot nonfat dry milk closed at dollar 23. That’s up $0.04. On the grain side of things, we’re looking at nearby corn at 404 per bushel, up $0.13 from this time last week.
00;00;54;19 – 00;01;20;05
ERICA
August. Soybeans at 1111 per bushel, also up $0.13. And meal at 343 per ton, up six bucks. It’s a new week. Another all star panel from the financial services team. We have, first off, Brit O’Connell, who helps grain growers manage risk. She’s out of our Platteville office. John Spain Power helps processors and users manage risk. Based in our Chicago office.
00;01;20;05 – 00;01;25;23
ERICA
And Colin Kate helps dairy producers across the United States manage risk. How are we today, team?
00;01;25;25 – 00;01;27;07
BRITT
Excellent. It’s a beautiful day.
00;01;27;12 – 00;01;28;14
COLIN
You’ve been great. Thanks, Erica.
00;01;28;16 – 00;01;50;15
ERICA
So today I wanted to focus on milk production and the prospects for future growth. So on Tuesday, the USDA released its monthly milk production report. U.S. milk output was down 1% year over year. It was only the Upper Midwest that registered any sort of growth. At the same time as we look at our forward calculations for margin over feed.
00;01;50;16 – 00;02;13;23
ERICA
So what’s the profitability look like on the dairy? We estimate DMC margins for the next 12 months to average well over $12 100 day. Now for context, historically, $9 to $10 is about to break even level on average. So to see margins as strong as this. And they broke through that $11 threshold back in February. And they’ve been an uptrend ever since.
00;02;13;24 – 00;02;21;11
ERICA
So Brett I want to start with you. The grain side of things really built out the cost foundation. How are you seeing things shape up this season?
00;02;21;15 – 00;02;42;27
BRITT
Erica, it’s certainly been a welcome relief to anybody who’s a grain buyer to see these prices slide the way that they have coming off of a couple of years of really strong prices. And so this has given folks an opportunity to buy corn and soybean meal and buy products at prices they haven’t seen in nearly five years. And we have been encouraging producers to do that very thing.
00;02;42;27 – 00;03;04;23
BRITT
And there’s really two elements that kind of go into that decision. The first is when we look at things from just a pure price perspective, we are flirting with prices that we haven’t seen in nearly five years, and we knew that the funds had been aggressively selling this market and at some record short positions. And then secondary to that, we were also in a place where dairymen were talking about that very thin margin.
00;03;04;24 – 00;03;27;10
BRITT
They were talking about how at today’s prices with feed and milk, that they were able to pencil in a positive margin. And so for those folks, it was absolutely essential that we did something on feed alongside of what they were doing on the milk side to make sure that they were able to project those margins forward. So we have absolutely been encouraging guys, look at attention to what’s going on in the markets, because things are generally moving in your direction now.
00;03;27;10 – 00;03;46;20
BRITT
I think we’re going to see a bit of a choppy sideways trade here. It appears that 4 or 3 is going to hold the mark, at least for now. In December, corn and soybean meal went down and flirted with that 310 territory. We bounce back, you know, 20 bucks a ton there since. But I think there’s still going to be some opportunities, as there are good crop condition scores being floated out there.
00;03;46;20 – 00;03;54;23
BRITT
And we still have pretty frothy balance sheets on both the corn and soybean side. So for buyers, there’s definitely opportunity present here.
00;03;54;29 – 00;03;59;26
ERICA
How long have your dairy producers been asking any questions about feed in particular?
00;03;59;27 – 00;04;14;25
COLIN
I would say so, Erica. I mean, I think the dairy producers that are looking at the futures curve are excited by what it looks like. And also, you know, they see the low prices and they say, hey, Ken, regardless of my opinion on milk, should I just be doing something as the margin for the rest of this year does look good?
00;04;14;25 – 00;04;18;24
COLIN
So I think the dairy farmers are pretty excited about where he’s at at the moment.
00;04;19;00 – 00;04;34;09
ERICA
John, let’s turn to the revenue side. Milk prices, new capacity coming online. I think the question that often gets asked is will there be enough milk? And so I guess I want to get your take as a veteran market analyst, how you see milk prices shaping up going forward.
00;04;34;12 – 00;04;57;25
JON
Well, Erica, I guess it comes down to what is theory and what becomes reality. If we look out here on the theoretical side of things, not only is there, you know, a pretty decent margin here on the spot basis and has been okay leading up to this point, but there’s also a pretty nice margin moving out on the curve on both the class three and class four versus that feed.
00;04;57;26 – 00;05;21;06
JON
So from a theoretical standpoint and a historical standpoint, that is very much an incentive to make milk. Now again, that’s the theory. We’ve had a lot of people come back to us and say, well that’s not going to happen because right. Or it won’t happen this time because and even within that, I think most people are willing to say, okay, yeah, eventually milk production will grow, but how quickly can it grow?
00;05;21;06 – 00;05;46;17
JON
And when can I expect that new milk production? I’m not necessarily willing to commit to any of those ideas. And right here on the front end, certainly anything can happen. We can always run into a heat wave or a bird flu, something that can affect milk production in the interim. But I think longer term, the setup for more milk production is certainly there here in the US, as well as when we look over to Europe as well.
00;05;46;20 – 00;05;52;07
JON
I do think that we should not be surprised, at the very least, if we see milk production start increasing.
00;05;52;09 – 00;06;12;23
ERICA
Let’s turn it to you, because we’ve heard from Bret on the cost side, John talked a little bit about the revenue side and leaned into the fact that these margins are looking good. So as folks are thinking about expansions on farms, do you have a sense for the viability of that? How realistic that is, and just a general sense from producers.
00;06;12;26 – 00;06;28;15
COLIN
Erica, I would say, you know, if we were having this conversation two years ago, there was a lot of pessimism. I mean, there was a lot of milk based programs were, you know, installed during Covid. And it kind of seemed like, hey, this is the future. You know, we have the technology, we have the capital. You’re not in.
00;06;28;20 – 00;06;47;22
COLIN
It’s too late. I’m not sure that people have the same take today. In the last six months, we’ve seen numerous space programs just kind of fall apart, or at least relax how stringent they are. In the northeast, we’ve seen, you know, additional processing capacity that has come to Idaho, which is maybe made milk a little bit tighter. We’ve seen it in the spot milk values, etc..
00;06;47;22 – 00;07;00;11
COLIN
And then also, if you look at the Midwest, you know, the Midwest has kind of been on its own in terms of how productive it’s been. A lot of that has been cow numbers rather than milk per cow. So it seems like there’s an opportunity to expand for those that want it.
00;07;00;14 – 00;07;21;07
ERICA
So I heard a banker at the Wisconsin Dairy Products Association Dairy symposium talking about. Many producers do have plans on the books. He suggested that interest rates are holding a lot of folks back. Would you feel in your experience that that’s a big factor in that decision making? Or is it back to your base access point and just trying to find a market from extra milk?
00;07;21;10 – 00;07;37;13
COLIN
110%. I think that’s true. I think it shows up in two big ways. The first one, the cost to build the majority of the structures that we are building today has in some cases doubled. So the amount of debt that someone would have to take on to milk the same number of cows is increased. If they were buying those cows, that price doubled as well.
00;07;37;14 – 00;07;53;09
COLIN
So that part is a problem and it’s against a higher interest rate. I guess the other one we’ve heard a lot about, there aren’t that many cows out there. And well, it’s probably never a good idea to bet against the American Dairy men’s ability to make more milk. It does seem like it’s going to be tougher, especially with the summer heat here.
00;07;53;10 – 00;07;59;20
COLIN
So expansion cows might have to wait as much as at least three, but probably six and additional months after.
00;07;59;23 – 00;08;15;23
ERICA
A big thank you to Brett, John and Collin for joining me on today’s episode and sharing your insights with our listeners. Thank you, as always to our media team for mixing and mastering. Thank you to the listeners for joining us today. If you like what you hear, subscribe on your favorite app. And if you’d like to learn more about how we help people manage risk.
00;08;15;26 – 00;08;19;16
ERICA
Contact us at Insights at ever Dot egg.
Disclaimer: TRADING FUTURES AND OPTIONS ON FUTURES INVOLVES SIGNIFICANT RISK OF LOSS AND MAY NOT BE SUITABLE FOR EVERYONE. THEREFORE, CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THE INFORMATION AND COMMENTS CONTAINED HEREIN ARE PROVIDED BY EVER.AG AS GENERAL COMMENTARY OF MARKET CONDITIONS. THIS INFORMATION SHOULD NOT BE INTERPRETED AS TRADING ADVICE OR RECOMMENDATION WITHOUT FURTHER DISCUSSION WITH YOUR EVER.AG ADVISOR. THIS IS A MATTER OF SOLICITATION.
The following music was used for this media project:
Music: Funky Intro 29 by TaigaSoundProd
Free download: https://filmmusic.io/song/9520-funky-intro-29
License (CC BY 4.0): https://filmmusic.io/standard-license
Artist website: https://linktr.ee/taigasoundprod
© Ever.Ag 2023, confidential and proprietary.
The post Parlor to Plate – July 25, 2024 appeared first on .
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