Economic Outlook for Representative Dairies Given the August 2007 FAPRI/AFPC Baseline
While projected milk prices are a primary determinant of the financial viability of the representative dairies, the prices of feed crops and cattle prices can also have an impact. Most of the dairies produce hay, silage, and other crops and are often net buyers. Commodity prices have a major impact on dairy returns because feed represents the number one cost for dairies. With the recent increase in demand for corn, prices are projected to increase, potentially affecting rations and feed costs. Projected milk and livestock prices for FAPRI’s August 2007 Baseline are presented in Table 1. In general, milk prices are projected to decrease each year from 2007 though 2012 after the large increase in price from 2006 to 2007. Cattle prices are expected to decrease with the downturn in the cattle cycle. Specifically, prices for milk and cattle are projected to move as follows: • U.S. All Milk price is expected to decrease from $19.07/cwt in 2007 to $15.72/cwt in 2012. • The localized prices for each state move with the U.S. All Milk price. • Feeder cattle prices are projected to decrease from $117.53/cwt in 2007 to $102.03/cwt in 2012. • Cull cow prices start at $50.94/cwt in 2007, increase to $52.98/cwt in 2008 and then decrease to $47.14/cwt by 2012. Projected crop prices for FAPRI’s August 2007 Baseline are also summarized in Table 1. Individual crop prices are projected to move as follows: • The U.S. all hay prices are expected to fall from $123.20/ton in 2007 to $110.86/ton in 2009 and then rise to $111.52/ton in 2012. • Corn prices start at $3.10/bu in 2007 and increases in 2008 to $3.38/bu and then falls to $3.25/bu by 2012. • Soybean Meal is expected to fall from $207.88/ton in 2007 to $192.68/ton by 2012. Projected annual rates of change for variable cash expenses are summarized in Table 2. The rate of change in input prices comes from FAPRI’s August 2007 Baseline. Based on projections from Global Insight, annual interest rates paid for intermediate-term and long-term loans and interest rates earned on savings are also reported in Table 2. Assumed annual rates of change in land values over the 2007-2012 period are provided by the FAPRI Baseline and are projected to range between a 3.51% and 13.68% per year.
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