Agrimoney.com | Revival in US milk prices to continue, says Dean Foods

 

Source: Agrimoney.com | Revival in US milk prices to continue, says Dean Foods

This is one of those situations where I don’t know where they’re getting their information because what they’re saying here isn’t what I’ve been reading in the ag news.

Dean Foods seems to be trying to claim farmgate prices are going to go up significantly, that US dairy exports are robust and growing, and that the markets are giving off “buoyant signals”.

But well, no, the market is doing no such thing, and there seems to be no indication that we’re going to be seeing any kind of significant increase in farmgate prices in the US any time soon.

While milk production in NZ and the EU is trending down a bit, here in North America it has continued to rise significantly, with significant numbers of new cattle being added to milking herds and continued increases in milk production. Texas was up about 11%, Minnesota and Wisconsin were up about 2% or a little less. Overall US production is around +1.2% to +2.3%, depending on the numbers you believe, and there doesn’t seem to be any sign that’s going to stop.

As for cheese, yes, there was a blip in the cheese price last week, but that happens all the time, especially as we get closer to major holidays, and we haven’t even begun to make a dent in the truly massive amounts of cheese and butter already in storage. The USDA’s recent purchase of about $20 million in surplus cheese (if I remember the number right) didn’t even make a dent in the amount of cheese in storage. And as of this morning, cheese prices have already started to fall again, down 6 cents over the weekend.

And the statement that “foreign buyers are lapping up” US dairy products is, aside from being a horrible pun, simply not true. Exports of dairy products actually dropped 2% in September.

There is always an uptick in prices this time of year as we approach the holiday baking season. Cream, cheese and butter prices almost always begin to rise around this time of year as retailers and suppliers try to cash in on increased demand. It’s a seasonal blip that doesn’t really indicate any kind of significant improvement in the market.

Maybe Dean foods is just trying to make investors feel a bit better about the fact that Dean’s profits fell by 28% last quarter?

Agrimoney.com | China’s pork imports to ease from record, as domestic output grows

The top pork consuming country will see its imports ease, a bit, next year as the boost to domestic output from high prices works through

Source: Agrimoney.com | China’s pork imports to ease from record, as domestic output grows

The agriculture industry is going to have to begin to accept the fact that in the future China is not going to be the massive importer of food that it has been in the past. Unfortunately it seems that a lot of agribusinesses in the US, South America, NZ and the EU haven’t figured that out yet. This is especially true of the dairy industry which still seems to be betting the farm on the hopes that China will return to the days when it was importing all of the milk and milk products it could get its hands on.

For years now China has been pushing hard to improve its agricultural systems. It has been investing heavily in almost every type of agriculture, from grain production, to meat, to dairy, China has been putting a great deal of money and work into improving and modernizing its farming techniques. The ultimate goal of the country is to be at least 90% self sufficient in food production within the next ten to twenty years.

Whether or not China will succeed in reaching that 90% goal I don’t know. But even if they don’t, it will still have a profound effect on world agriculture. We’ve been treating China as a guaranteed market, a buyer of massive amounts of product that will always be there to help absorb our products. But it won’t. And the effects will be profound, as they were when China abruptly cut back drastically on milk product imports. The result from that was the price of milk and milk products plummeting by almost half, and the dairy industry still hasn’t recovered from that.

There will almost certainly be a China market, but it’s almost certain to be far smaller than it has been in the past. If agribusiness can’t learn to adjust, other agricultural sectors are going to find themselves in the same situation dairy is in now.

Merger Fever

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If you follow ag news you must be aware of the high profile mergers and buyouts going on in agribusiness. After months of trying to sell itself or merge with another agribusiness company, Monsanto seems as if it is going to be snapped up by pharmaceutical giant, Bayer, so the German company can increase it’s ag presence. Bayer is already a major maker of pesticides and snapping up Monsanto would give it a significant presence in the GM seed market as well.

It is not a done deal by any means. It still has to be passed by antitrust regulators both here and in the EU. There seems to be considerable resistance to the merger in Germany and in the EU as a whole, and a lot of politicians over there have been making disapproving noises.

This isn’t the only big ag merger going on, either. Dupont and Dow Chemical are in the process of merging, with the details still a bit up in the air. Swiss company Syngenta, which Monsanto had attempted to cut a deal with earlier, is being snapped up by the China National Chemical corporation, which is owned by the Chinese government. All four of these companies are major players in the agricultural chemical industry. (ChemChina seems to be on a buying spree. Last year it bought Pirelli, the Italian tire maker)

Mergers, acquisitions, buyouts, etc. aren’t anything new, especially in the ag industry. It’s been going on for ages. And generally the results, at least for the farmers, aren’t pretty. Over the years we’ve seen virtually every small, independent co-op, feed processor, seed maker, machinery dealer and independent mechanic be bought up, forced out of business or merged into ever larger semi-monopolistic businesses. And while competition has dwindled, farmers have fewer choices of where to go to buy seed, fertilizer, feed, chemicals and equipment, prices have, of course, skyrocketed.

The problem with all of these mergers is that they don’t seem to benefit anyone except a handful of investors, lawyers and, of course, the upper management of the companies themselves. They certainly don’t benefit the consumers, that is the farmers and you, the people who buy the milk, cheese, eggs, meat, vegetables and fruit that the farmers produce.

We used to plant 30 to 40 different types of soybeans in the US. Today, 90% of all the soybeans planted in the US are a single variety, produced by Monsanto. The fact that Monsanto has a literal monopoly on soybean seed isn’t the only problem with the situation. It’s the fact that we could be facing a very serious biological crisis. If a new disease pops up that this one variety of bean is susceptible to, the entire US soybean crop could be jeopardized because of this lack of genetic diversity. These monopolies have resulted in such a lack of genetic diversity in our agricultural systems that many of them now lack the genetic diversity to be sustained if a disease strikes them.

What these companies try to do, want to do, is lock farmers into a specific “system” of agriculture. You buy a specific type of seed to plant. That plant comes along with a specific program of herbicide and pesticide control systems, also sold by the company. Farmers do it because it’s easy. Sort of one stop shopping. They get everything they need from one vendor. And generally these systems are profitable.

At least at first. What generally happens is the company starts to get greedy. After releasing the system at a relatively decent price, the company starts ratcheting the price up once farmers get hooked into it. Prices go up until farmers realize the system isn’t all that profitable any longer. But by that time, well, they have such a heavy investment in the system they can’t really get out of it any more. Besides, where else are they going to go because the company has driven all of it’s competition out of business.

Farmers who want an alternative have enormous trouble even trying to find one. These semi-monopolies claim there is still a lot of competition out there. And it’s true that there are some competitors. But not many, and even fewer who could provide large scale farmers with the quantity of seed they need at a price they can afford to pay.

Disconnection from Reality in Agriculture

I often find myself irritated by what appears to be a serious problem with how some ag news outlets and their various pundits report on the dairy industry. Ever since milk prices plummeted a couple of years ago, I’ve been reading an endless string of opinion pieces by the so called experts, the pundits, even actual news reports, that indicate that milk production is dropping, or is going to drop, the number of milking cows is going to shrink, and there is going to be a significant improvement in farmgate(1) prices.

Even as I was reading some of those items I was scratching my head because the actual data I was seeing was telling me exactly the opposite of what the pundits at the ag web sites were claiming. While there was some shrinking numbers in some parts of the world, like New Zealand, what I was seeing in the rest of the world was a significant increase in production almost world wide.

The experts were claiming that production in the US was shrinking as well. They were claiming that production was flat or even shrinking as farmers culled herds and halted expansion plans.

The problem was that at the same time I was seeing new permits for mega farms being applied for, news stories about expansion plans, and other indications that exactly the opposite was happening.

The new USDA report that came out yesterday supported what I’d been seeing in the news, and indicated that the pundits don’t read the news reports in their own magazines or websites.

August milk production was up almost 2% in the US. Texas’ production was up 11%. The report said that 16,000 milking cows were added in July alone, and 45,o00 were added over the past year. And just ten minutes ago I was reading about yet another application here in Wisconsin for a dairy CAFO(2) to expand to 5,000 head.

The problem with a lot of these experts seems to be that they look at a specifically local condition and extrapolate from that and apply it world wide, while ignoring what’s really going on.

Some of the claims that production in the US was in decline was due to California. Production there has been declining significantly for the last ten years for a variety of factors. But they’ve been ignoring the fact that almost everywhere else in the US production has been going up. Wisconsin, North Dakota, Arizona, Minnesota… almost every state with any kind of significant dairy farm presence has been increasing production, often dramatically, as with Texas.

It’s been the same thing with the EU. They focus on a single country that’s seen a decline in production, and from that claim production is going down through the entire EU. When it isn’t.

It’s been a similar story when it comes to demand for milk products. They seem to focus on a small part of the world that is experiencing an increase in demand for milk products, and apply that world wide.

Even worse, they’ve gotten in the habit of looking at Global Dairy, a milk marketing system in New Zealand, as an indicator of world wide demand. But they tend to ignore the fact that GD is not an independent market. It is a wholly owned subsidiary of Fonterra, the New Zealand milk processing giant, and that it has a history of deliberately manipulating supplies flowing through the market in order to manipulate prices. Neither the amount of product flowing through GD, nor the prices of the products sold, is an accurate picture of supply and demand.

 

 

  1. Farmgate price is not the commodity futures price, but the actual price that the farmer gets for her/his product. There is often a significant difference between the commodities prices and the farmgate price. For example, a couple of months ago when the corn price on the Chicago market was running about 3.49, the actual price farmers in this area were getting for their corn was 2.78.
  2. CAFO is the term used by government for a mega farm. Concentrated Animal Feeding Operation. It applies not just to dairy farms but to any animal operation that has more than a certain number of cattle, pigs, etc. Generally around 500 – 700 animals.

U.S. Bites Into Cheese Mountain With Stockpile Purchase (1) | Agweb.com

Milk glut has pushed dairy prices to lowest levels since 2009.

Source: U.S. Bites Into Cheese Mountain With Stockpile Purchase (1) | Agweb.com

The buy by USDA will do little to improve farmgate milk prices, and in the long run might actually do more harm than good by temporarily improving wholesale prices and thus encourage even more overproduction.

It has not been a good time to be a dairy farmer almost anywhere in the world over the last year or two. A variety of factors, including wide spread drought one year and China stockpiling milk products led to a dramatic upturn in the farmgate price for milk. And for a time dairy farmers were doing pretty darn good.

Unfortunately, it seems that everyone, including a lot of people who should have known better, seemed to think that this situation was going to continue into the future, that dairy prices would remain high, and that there were massive profits to be made if they expanded production. As a result dairy operations began expanding all over the world. The EU lifted its production restrictions, farmers added cows, processors began building new production facilities. Fonterra, the world’s largest dairy co-op based in New Zealand, was investing heavily in the Chinese dairy industry because it saw massive profits were just waiting.

Well, it couldn’t last. And it didn’t.

China wasn’t buying up milk products because it really needed them. China was buying because it was first of all, getting a really, really good price. It wasn’t using the products it was buying, it was stockpiling them against future price increases. Chinese consumption of imported milk products was also being driven by a series of serious food contamination scares, including the deliberate adulteration of milk by criminals with chemicals that made the milk appear to have higher protein levels in order to get higher prices. The adulteration resulted in hundreds, even thousands of people becoming sick and some even dying. Ventures into marketing milk products in Southeast Asia were failing badly. The Chinese themselves were investing heavily in domestic milk production. China hates being dependent on imported foods for obvious reasons, and has been trying to do something about it. Western style mega-farms were starting to pop up, supported by the government. China was also cleaning house internally, launching extremely strict monitoring of food production to prevent things like the milk adulteration horror. They actually executed people for that crime.

So while China’s imports of milk products was shrinking drastically, world wide demand was flat, production continued to expand.

And milk prices plunged.

My father often said that a lot of farmers were their own worst enemy. Unfortunately he was largely correct.

He was also enormously skeptical of government price support efforts, and he was largely correct there as well. While these government programs like this cheese buy are well intentioned, in the long run they only serve to make the problem worse by temporarily propping up market prices and encouraging over production. Once the program ends, the market ends up being worse than it was before.

 

IDC: Smartphone shipments flat for the first time; Samsung widens lead over Apple in Q1 2016 | VentureBeat | Mobile | by Emil Protalinski

Smartphone vendors shipped a total of 334.9 million smartphones worldwide last quarter. This figure is up just 0.2 percent from the 334.3 million units in Q1 2015, marking the smallest year-over-year growth on record. We saw hints of this in yesterday’s Apple earnings report, when the company reported an iPhone sales drop for the first time.

Source: IDC: Smartphone shipments flat for the first time; Samsung widens lead over Apple in Q1 2016 | VentureBeat | Mobile | by Emil Protalinski

That cell phone sales have flatlined shouldn’t surprise anyone. The advances in technology that drove a lot of sales has slowed to a crawl. Where once each generation of phone being released offered impressive improvements in ease of use, processing power, storage, etc., the last few generations of phones have offered almost nothing new to the users. Most of the improvements made over the last two or three years have been incremental, almost unnoticeable to the user; slight improvements in the cameras, a bit better screen resolution, slightly faster processors, small increases in available memory.

So with most, if not all of the improvements to the phones now being so slight as to be virtually unnoticeable to the end user, why bother to upgrade? The only reason I upgraded to an iPhone 6 was because my ancient iP 4 was on its last legs, and I got one hell of a good deal on it. Otherwise I’d still be using it. My wife is still quite happy with her elderly iP 4, and she’ll keep using it until it expires because there is no reason for her to change.

The same thing is happening in the personal computer industry. Sales are flat, even declining, because there have been few, if any, new technologies introduced that people want or need.

Agrimoney.com | Farmland Partners unveils $197m land purchase – and plans for more

The group takes its portfolio of US land nearly to 100,000 acres – in a deal which will provide collateral for funding for more acquisitions

Source: Agrimoney.com | Farmland Partners unveils $197m land purchase – and plans for more

I’m beginning to wonder if it’s time to start to become worried about this trend. Farmland Partners is just one of dozens of investment companies buying up enormous amounts of farmland. Not to farm it themselves, but to turn around and rent it at the highest prices they can possibly get.

Given the volatility of the stock, bond and commodities markets, and the ridiculously low interest rates being paid by banks for standard savings accounts, the desire to invest in a fairly stable and relatively profitable venture like farmland is understandable. Farmland values do fluctuate, true, but not nearly as wildly as stocks and commodities. Compared to those ventures, farmland seems a fairly safe investment.

And a potentially profitable one because the land doesn’t just sit there, it gets rented for as much as $200 – $500 an acre, depending on local demand.

But I get very nervous when I see more and more farmland being concentrated in the hands of fewer and fewer owners, especially investment companies who have no vested interest in preserving the long term quality of the land, and only in making a return on investment. This practice makes it increasingly difficult for real farmers who want to get into the business to get started. Land has become so expensive in many parts of the country that it’s difficult or even impossible for a small start up farm to get off the ground without having the backing of outside investors.

Even worse, because the holding companies are going to charge the maximum rent they possibly can, those who can afford to rent the land are going to be forced to engage in the most intensive, potentially damaging, high chemical input farming techniques they can in order to maximize their own profits. This results not just in increased pollution from fertilizer, pesticide and herbicide run off, but also results in the degradation of the quality of the land and it’s fertility, causing even further reliance on intensive chemical intervention to continue to get the best yields.

Is this legal? Yeah. It is. At least in most states. Some states have restrictions on the amount of farmland that can be owned by out of state investors, but over the years those laws have been changed or even eliminated to permit companies like Farmland Partners to move in and take over. And I can understand the attraction. I own a fairly big stock portfolio, and the volatility of the market often makes me more than a little nervous. Farmland seems a far more stable, if a bit less profitable, investment for a lot of people.

While it may be legal and understandable, that doesn’t mean it’s the right thing to do.

Personally I feel the adverse effects of these companies; the artificial inflation of land prices, potential degradation of farmland, etc. outweighs the benefits.