MARKET WATCHMARKET WATCH HAY COSTS CONTINUE TO CLIMB GAS PRICES DOWN SLIGHTLYFEED

Scott DrukerSenior Business ManagerArm & Hammer Animal Nutrition

8 Progressive Dairyman Issue 15 • October 12, 2011

COMMODITIES

Source: Data taken from http://future.aae.wisc.edu/data/monthly_values/by_area/2403?area=US&tab=costs&yoy=true. Accessed: September 20, 2011.

Mar Apr JuneMay July SeptAug Oct Nov DecFebJan

2009

2010

2011

Pennsylvania$3$4$5$6$7$8$9

$10 Regional income over feed cost (per cwt)

Soybean meal* ($/ton)

Sept. 26 Price 3-week change

CA $366 $41

ID $363 $42

*Price quotes contributed by Western Milling, J.D. Heiskell.

Corn* (in tons) (in bushels)

Sept. 26 Price 3-week change

CA $295 $5

ID $286 $37

Price 3-week change

$8.26 .98¢

$8.00 $1.05

Sept. 26 Price 3-week change

CA $459 $20 ID N/T N/T

Cottonseed* ($/ton)

Supreme hay ($/ton)

Sept. 26 Price 3-week change

Central CA $315-$320 $5 UT $180-$230 NCNV $280 NC

WA/OR $285 $30

CO $210-$230 $20

NM $270-$285 $5-$20

TX $300-$350 $25-$30

ID $240-$250 $5-$15

IL $185-$210 NC

IA $190-$200 NC

KS $230-$270 $10

MO $150-$190 NC

MT $170-$200 $15

NE $170-$200 NC

VA $335 $23

PA $305-$315 NC

Source: USDA National Hay, Feed & Seed Summary

Identifying areas of fi nancial opportunity is especially important for dairy producers to maximize profi tability. One fi nancial metric that can help identify where potential opportunities exists is income over feed cost (IOFC), which is calculated by subtracting feed costs from milk production income. As they are the largest expense for your dairy operation, having a grasp of your feed costs allows you to make business-minded decisions on which ingredients are having profi table impacts. Knowing how to calculate IOFC can also help you identify the performance improvements needed to make an initial investment profi table.

� e fi gure to the right depicts IOFC per cow per day over the past three years in Pennsylvania. � e feed cost represents the cost to produce 65 pounds of milk, using regional prices of corn, soybean and alfalfa hay. � e all-milk price is used as the milk income.

Using this data, we can identify two opportunities:

• Focus on marginal income. While much conversation has taken place

related to rising input costs, the margin between milk and feed is the highest it’s been in two years. When we look beyond milk price and more specifi cally focus on marginal income, trends are positive and off er opportunity for fi nancial improvements to be made. Make sure you capitalize on these.

• Identify areas for additional income generation. When IOFC is favorable, as we have seen in 2011, look for ways to invest the additional margin to increase IOFC to even greater heights. For example, make investments in the ration that are proven to increase milk volume and component production. � is will translate to incremental benefi ts and optimized herd IOFC. PD

Dec2011

JulyMay Sept DecMar2012

Low

High

Settle$5.50

$6.00

$6.50

$7.00

$7.50

$8.00

$8.50

Oct2011

May July Aug Sept OctDec MarJan2012

High

SettleLow

$310$320$330$340$350$360$370$380$390$400

REGION

GAS DIESEL

Recent 3-week change

Yearly change Recent 3-week Yearly

change

East Coast $3.507 -.132¢ +0.876¢ $3.804 -.082¢ +0.858¢

Midwest $3.432 -.279¢ +0.754¢ $3.738 -.114¢ +0.81¢

Gulf Coast $3.309 -.185¢ +0.749¢ $3.73 -.07¢ +0.847¢

West $3.725 -.001¢ +0.851¢ $3.957 -.024¢ +0.836¢

California $3.887 -.057¢ +0.891¢ $4.039 -.019¢ +0.90¢

U.S. $3.509 -.165¢ +0.815¢ $3.786 -.082¢ +0.835¢

Nov2011

MayAprMarFeb June July Sept Oct NovAugDec Jan2012

Settle$84

$85

$86

$87

$88

$89

$90

HAY COSTS CONTINUE TO CLIMB GAS PRICES DOWN SLIGHTLY

FUTURES

ENERGY

High: $7.87 Low: $5.79

High: $385.50 Low: $320.50

High: $88.96 Low: $84.88

Corn (dollars per bushel)

Soybeans (dollars per ton)

Crude oil (dollars per barrel)

CornDec ’11 contracts $7.01 -.48¢ $7.48/$6.39Mar ’12 contracts $7.14 -.47¢ $7.61/$6.52

SEPT. 26 Avg. 3-week settle High/Low

Soybean mealOct ’11 contracts $349.71 -$22.60 $370.30/$326.00Dec ’11 contracts $354.17 -$22.94 $375.10/$330.10

Source: USDA NASS Agricultural Prices report August 15, 2011

Source: Chicago Mercantile Exchange data

Source: U.S. Energy Information Administration

The chart above displays the amount of income a U.S. producer would have remaining after paying for feed to produce one hundredweight of fl uid milk at the current all-milk price.

Prices used to calculate ratioCommodity Current Change

Corn (bu) $6.62 .30¢ Soybeans (bu) $12.90 -.20¢ Baled hay (ton) $191 $2.00 All-milk (cwt) $22.00 .10¢ Source: USDA NASS Agricultural Prices report July 2011

Sept2010

Jan2011

Mar Apr JuneMay July AugOct Nov Dec Feb

2009

2010

$6

$7

$8

$9

$10

$11

$12 U.S. income over feed costs (per cwt)

Aug. 2011: $10.36 High: $10.87 Low: $6.50

Issue 15 • October 12, 2011 Progressive Dairyman 9

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MARKET WATCHMARKET WATCHMARKET WATCHMARKET WATCHMARKET WATCHMARKET WATCHMARKET WATCHCATTLE

10 Progressive Dairyman Issue 15 • October 12, 2011

MARK ETWATCHSept. 26, 2011

Top Springer

Top Average

Medium Holstein Springer

ShortbredsOpen

Heifers Light

Open Heifers Heavy

HeiferCalves

BullCalves

Breeding Bulls

Empire Livestock – Burton MarketVernon, NY (800) 257-1819 (sale 9/22/11)

$1,400$100

$1,200 $50

$1,250 $150

$1,100NC

$500 $100

$800 $100

$150NC

$100$20

N/T

Mammoth Cave Dairy Auction, Inc.Smiths Grove, KY (800) 563-2131(sale 9/20/11)

$1,690 $160

$1,420 $10

$1,220 $10

$1,160$220

$510$30

$680$10

$120$10

$75 $5

N/T

New Holland Sales StablesNew Holland, PA (717) 354-4341(sale 9/21/11)

$1,650 $150

$1,500$275

$1,425 NC

$1,200$125

$1,050$450

$850 $300

N/T N/T$1,450$125

Mid-Georgia Livestock AuctionJackson, GA (770) 775-7314 (sale 9/13/11)

$1,800 $50

$1,625 $125

$1,275 $25

N/T$575 $50

$675 $200

$210$40

$80 $15

N/T

Equity Co-op LivestockStratford, WI (715) 687-4101Rocky Olsen (608) 434-4037 (sale 9/20/11)

$1,675 $25

$1,425 $25

$1,275NC

$1,250$25

$625 $125

$1,075$25

$260$25

$165$5

N/T

Lake Odessa LivestockLake Odessa, MI (573) 682-1080 (sale 9/20/11)

$1,850NC

$1,300NC

N/T $1,200NC

$700$200

$950$250

$200NC

N/T $1,200NC

Spring� eld Livestock Marketing Center Springfi eld, MO (417) 869-9500 Doug Thomas (417) 840-9316 (sale 9/28/11)

$1,575$85

$1,385$35

$920 $80

$1,130$20

$400 $90

$1,000 $40

$170$30

$100 $55

N/T

Topeka Livestock AuctionTopeka, IN (206) 593-2522 (sale 9/20/11)

$1,650 NC

$1,353 $89

N/T N/T$1,194 $42

$1,600 $150

$275$65

N/T$875$50

United Producers, Inc.Marion, MI (517) 294-3484 (sale 9/16/11)

$1,875$125

$1,725 $125

$1,400NC

$1,400NC

$500 NC

$1,050NC

N/T N/T N/T

Producers LivestockJerome, ID (208) 324-4345 (sale 9/21/11)

$1,600 $90

$1,540 $90

$1,460 $60

$1,075 $109/cwt N/T N/T N/T N/T

Toppenish Dairy Replacement SalesToppenish, WA (509) 865-2820 (sale 8/5/11)

$1,600$100

$1,400 NC

$1,300NC

$1,200NC

$155/cwt $130/cwt$50NC

$50NC

N/T

A & M Livestock Auction, Inc.Hanford, CA (559) 582-0358 (sale 9/21/11)

$1,850$75

$1,550NC

$1,350NC

$1,100$100

$150/cwtNC

$130/cwtNC

$110NC

$70$20

$1,050$50

Escalon Livestock Market, Inc.Escalon, CA (209) 838-7011(sale 9/14/11)

$1,600 NC

$1,350 $50

$1,250$50

N/T$100/cwt

NC$125/cwt

NCN/T N/T

$1,000NC

Contact Judy about being included in Progressive Dairyman’s Market Watch! judy@progressivedairy.com • (208) 324-7513 NC = No change N/T = No test Decrease in price Increase in price

Log on to www.progressivedairy.com to get auction reports from more locations!

NOTE: The colored bar represents cumulative year-to-date milk production. When it does not surpass the dotted line at the center of the box, it indicates state production is below the previous year’s total. When it does surpass the dotted line, it indicates production is above the previous year’s total.

MARKET WATCHMARKET WATCH WEST LEADS INCREASE IN MILK PRODUCTIONMILK

Texas435 NC

1,795 +5.9%781 +11.1%

6,394 108.6%

Utah88 NC

1,820 -0.6%160 +2.6%

1,228 100.8%

Vermont134 NC

1,580 +0.6%212 -1.4%

1,713 100.9%

Virginia96 NC

1,450 -1.7%139 -0.7%

1,159 99.7%

Washington265 NC

2,045 +1.5%542 +6.7%

4,125 104.4%

Wisconsin1,264 NC1,745 +1.2%2,206 +1.2%

17,505 99.4%

Arizona187 +1

1,810 +2.6%338 +6.3%

2,987 106.8%

California1,777 +11,970 +1.6%3,501 +2.9%

27,884 102.8%

Colorado129 +1

2,000 -1.2%258 +6.2%

1,991 107.0%

Florida119 NC

1,400 +4.9%167 +9.9%

1,578 106.9%

Idaho582 NC

2,040 +2.0%1,187 +3.9%

8,849 104.5%

Illinois98 NC

1,540 +3.0%151 +2.0%

1,272 97.5%

Indiana171 +1

1,680 +2.1%287 +3.2%

2,336 100.7%

Iowa199 -1

1,760 +3.5%350 -0.6%

2,908 99.1%

Kansas124 NC

1,750 +1.5%217 +4.8%

1,740 105.2%

Michigan368 +1

1,955 NC719 +2.4%

5,666 101.2%

Minnesota471 NC

1,520 -4.7%716 -4.5%

5,986 96.9%

Missouri96 NC

1,090 -5.2%105 -7.9%

944 95.3%New Mexico

330 NC2,065 +1.2%681 +4.9%

5,462 103.2%

U.S. Total9,217 +21,783 +1.1%16,432 +2.1%

131,795 101.6%

New York610 NC

1,785 -0.3%1,089 -0.5%

8,641 101.3%

Ohio266 NC

1,590 -1.2%423 -2.8%

3,437 96.5%

Oregon123 NC

1,765 +2.0%217 +3.8%

1,666 104.6%

Pennsylvania539 -1

1,640 -1.8%884 -2.1%

7,139 98.9%

12 Progressive Dairyman Issue 15 • October 12, 2011

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COOLING MIDWEST LIFTS MILK-PER-COW Production

Texas434 +4

1,850 +4.2%803 +10.3%

4,815 108.3%

Legend

Number of cows(in thousands)

Milk per cow(month)

(lbs.)Total milk

production (month)

(in millions of lbs.)

Year-to-date milkproduction (total)(in millions of lbs.)

Percentage of year-to-date production versus previous year-to-date

Monthly change(in thousands)

Annual percentchange

Annual percentchange

95% 100% 105%

Sept2010

Jan2011

Feb Mar Apr May June July AugOct Nov Dec

2009 2010

9,0509,0759,1009,1259,1509,1759,2009,2259,250 August 2011: 9,217 High: 9,217 Low: 9,082Milk cows (in thousands)

Sept2010

Jan2011

Feb Mar Apr May July AugOct Nov Dec

20092010

June1,600

1,650

1,700

1,750

1,800

1,850

August 2011: 1,725 High: 1,816 Low: 1,640Milk per cow (in pounds, 30-day equivalent )

Sept2010

Jan2011

Feb Mar Apr May June July AugOct Nov Dec

2009

2010

14,500

15,000

15,500

16,000

16,500

17,000

August 2011: 15,902 High: 16,709 Low: 14,923Milk production (in pounds, 30-day equivalent)

U.S. HERD STATS

Aug. daily avg. milk per cow: 57.5 lbs.

Bob CroppProfessor EmeritusUniversity of Wisconsin – Madison

� is increase in milk production continues to be led by western states. Compared to August a year ago, Western states experienced the following increases: Arizona – 6.3 percent, California – 2.9 percent, Colorado – 6.2 percent, Idaho – 3.9 percent, New Mexico – 4.9 percent, Oregon – 3.8 percent, Texas – 11.1 percent, Utah – 2.6 percent and Washington – 6.7 percent. With Hurricane Irene followed by tropical storms, milk production was expected to be down in Northeast states. Production was down 0.5 percent in New York and 2.1 percent in Pennsylvania. Production was also down 2.8 percent in Ohio and .7 percent in Virginia. Another contributing factor for a greater increase in August milk production was some recovery from hot and humid July weather experienced in the Midwest that depressed milk per cow. PD

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YieYieeld l PotPo entn ial EXEX

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Issue 15 • October 12, 2011 Progressive Dairyman 13

Feb Mar Apr May July AugJuneOct Nov DecSept2008

Feb Mar Apr May June July Aug Sept Oct Nov DecJan2009

Feb Mar Apr May June July Aug Sept Oct Nov DecJan2010

Jan2011

CA Class 1 price

Federal Class I price$8

$10$12$14$16$18$20$22$24

MARKET WATCHMARKET WATCH GLOBAL DEMAND SLOWS, 2012 outlook lowered BUTTER PRICES DECLINE SHARPLYDAIRY PRICES

Annie AcMoodyDirector of Economic AnalysisWestern United Dairymenaacmoody@westernuniteddairymen.com

Aug. 2011: $21.43 High: $21.43 Low: $9.43Aug. 2011: $23.51 High: $23.51 Low: $11.40Fluid milk prices (in dollars)

Summer unfortunately ended on a downward note with the major dairy commodities losing steam over the month of September. � e trend was not only observed domestically, but also in the global market as Dairy Market Newsreported lower prices. Values at the globalDairyTrade (gDT) auction tumbled downward, with anhydrous milkfat averaging its lowest price since it started trading at the auction and skim milk powder averaging the lowest price since 2010. Fortunately, the feed side of the equation softened some, but it remains at elevated levels.

� e growing global demand that had been fueling strong world dairy prices seems to have reached a pause. While demand didn’t disappear, uncertainty became a bigger part of the picture and prices started softening, eventually impacting our competitiveness. � e latest export data shows July year-over-year butter shipments down 21 percent. Cheese exports were up 5 percent from last year but were at the lowest level since November 2010. � e USDA projects export demand for this year at 32.6 billion pounds on a skim-solids basis, up 0.5 billion pounds from 2010. � e forecast for 2012 is lower at 32.3 billion pounds.

In light of this information, the USDA revised its price forecast slightly lower in its latest supply and demand outlook, with an all-milk price projected to range between $20.15 and $20.35 per hundredweight for 2011. Specifi cs in the report also include milk production estimates of 195.7 billion pounds for 2011 (up 1.5 percent from 2010) and 198.5 billion pounds for 2012 (up 1.4

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14 Progressive Dairyman Issue 15 • October 12, 2011

Sept2009

Feb Mar Apr May June July AugOct Nov Dec Jan2010

Feb Mar Apr May June July Aug Sept Oct Nov Dec

Futures2011

2012

Jan2011

2013

$11

$13

$15

$17

$19

$21

$23

GLOBAL DEMAND SLOWS, 2012 outlook lowered BUTTER PRICES DECLINE SHARPLYClass III (in dollars)

9/24/11

7/2/11

8/6/11

9/3/11

10/2/10

11/6/10

12/4/10

1/1/11

2/5/11

3/5/11

4/2/11

5/7/11

6/4/11

20102009

$1.00

$1.25

$1.50

$1.75

$2.00

$2.25

$2.50 Sept. 24, 2011: $1.81 High: $2.23 Low: $1.24Butter (weekly average in dollars)

9/22/11

9/23/11

9/26/11

9/9/11

9/12/11

9/13/11

9/14/11

9/15/11

9/16/11

9/19/11

9/20/11

9/21/11

9/6/11

9/7/11

9/8/11

$1.75

$1.80

$1.85

$1.90

$1.95

$2.00

$2.05Butter prices in the U.S. got tangled in a freefall-like decline in September as CME spot prices went from $2 a pound at the beginning of the month, all the way down to $1.81 per pound on September 24. NASS prices, which typically lag prices at the CME, were not down quite as much yet, averaging $1.93 per pound for the week ending September 17. USDA’s Cold Storage report showed an increase in August butter inventory over last year of 7 percent, the fi rst year-over-year increase since 2009. Stocks were down 11 percent from July, a normal pattern for this time of year as we approach the holiday buying season.

AprMarFebNov Dec Jan2011

May June AugOct JulySept2010

2009

2010

$1.00$1.10$1.20$1.30$1.40$1.50$1.60$1.70$1.80

Aug. 2011: $1.65 High: $1.74 Low: $1.03Non-fat dry milk

4/2/11

9/3/11

9/24/11

10/2/10

11/6/10

12/4/10

1/1/11

6/4/11

7/2/11

8/6/11

2/5/11

3/5/11

5/7/11

2009

2010

$1.20

$1.45

$1.70

$1.95

$2.20

9/23/11

9/26/11

9/8/11

9/9/11

9/12/11

9/13/11

9/14/11

9/15/11

9/16/11

9/19/11

9/20/11

9/21/11

9/22/11

9/6/11

9/7/11

$1.70

$1.72

$1.74

$1.76

$1.78

$1.80

Sept. 24, 2011: $1.72High: $2.15 Low: $1.27

Cheese (weekly average in dollars)

Cheese markets also followed the declining trend, but in a less dramatic manner: CME Cheddar block prices lost 6.25 cents over three weeks. As a comparison, the most recent NASS-surveyed weekly block prices averaged nearly a dime higher, at $1.8159 per pound. Class III futures followed the CME trend and also declined recently, losing as much as $1.15 per hundredweight in the last month for October contracts. The imputed Cheddar cheese price based on current futures would yield a price of $1.72 per pound for October, in line with the current spot market.

Aug. 2011: $21.67 High: $21.67 Low: $12.11

percent from 2011). High dairy prices throughout the spring and summer, despite high feed prices, contributed to the progressive herd expansion that is occurring across the country. According to the latest USDA Milk Production report, there were 94,000

more cows in the U.S. dairy herd in August versus the same time last year. Milk per cow also showed improvement, increasing 19 pounds over the same month last year. In 2012, the national dairy herd is expected to decline slightly. PD

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Milk to the MAX ®

Issue 15 • October 12, 2011 Progressive Dairyman 15