http://abcnews.go.com/US/wireStory/calif-dairies-strained-feed-milk-prices-17356072#.UGhuzLRZ1B0
http://online.wsj.com/article/SB10000872396390443389604578024180178198160.html
In nearly six decades of running a dairy in central California, Mary Cameron made a name for herself in a male-dominated industry: She led several dairy organizations and was honored as Outstanding Dairy Producer of the Year.
But the 82-year-old Cameron — who still drives a tractor and supervises her Hanford dairy — is on the brink of losing her life's work. She can no longer pay the bills. Her bank has classified her loan as distressed. And she can't afford enough feed for her 900 milking cows and 1,000 heifers.
"I have been in this business for 57 years and I have never been in financial trouble like I am right now," said Cameron, who runs the Atsma-Cameron Dairy with her two sons. "I'm on the verge of bankruptcy. It's horrible and inexcusable."
Cameron is not alone. Across California, the nation's largest dairy state, dozens of dairy operators large and small have filed for bankruptcy in recent months and many teeter on the edge of insolvency. Others have sold their herds or sent them to slaughter and given up on the business.
Experts say California dairymen face a double whammy: exorbitant feed costs and lower milk prices. The Midwest drought has led to corn and soybean costs increasing by more than 50 percent this summer, stressing dairymen from Wisconsin and Minnesota to Missouri. But in California, milk prices have also lagged behind those in the rest of the nation, exacerbating the crisis.
And while milk revenues in California have soared to over $7.5 billion in 2011, making milk the top agricultural commodity, higher revenues mean little, famers say, because it costs so much more to produce the milk.
"I don't think there's a milk producer in the state who is profitable right now," said Michael Marsh, CEO of Western United Dairymen.
Since 2008, California has lost nearly 300 dairies, with 1,668 remaining as of January, according to the California Department of Food and Agriculture. There are no official estimates on how many dairies have shuttered in 2012 — but interviews with dairymen and experts indicate several hundred dairies could be in danger of going under.
"It's been like a floodgate," said Riley Walter, a Fresno-based agricultural bankruptcy lawyer who has worked on 58 cases of dairies in financial trouble this past year — from bankruptcies, to liquidations, to operations taken over by receivers.
"Recently, I had two men over 60 years old who broke down and sobbed in court," Walter said. "You would be surprised how much these men care about their cows."
At the Overland Stock Yard in Hanford, owner Peter Belezzuoli said he sees two to three dairymen selling their entire herd every month, compared to about four per year before the crisis. More cows are being sold for slaughter, he said. And the value of dairy cattle has plummeted by as much as 50 percent in the past five years.
"It's no different than the housing industry, where people lost all the equity," he said. "People have the same cow, but now it doesn't have the same value."
Economists say milk and feed prices always fluctuate — but it's the margin between the two that counts, and how far apart the thin years are.
Only three years ago, falling milk prices forced many dairymen to go under. The current crisis, dairymen say, came too quickly. Many still have unpaid loans, have exhausted their equity, and can't get new loans.
For Cameron, who grew up washing barns and feeding cows, costs of production vastly surpass revenues. She's losing $40,000 every month, she said.
Her parents emigrated from Holland in the 1920's and started a dairy in California's Central Valley. After college, Cameron followed in their footsteps: Her office wall is filled with awards and news articles touting her successful dairy career.
Today, Cameron owes $7.5 million to her banks and creditors, and has run out of cash for feed. To make ends meet, she has sold cows for beef and fed her herd less grain — but that means milk production is down and so is revenue.
Cameron recently saw a bankruptcy lawyer and may have to sell her entire herd and dairy.
"It just makes me sad," Cameron said. "This is a world I love, this is my life."
For her woes, Cameron blames state officials' decision to keep milk prices lower than those in other states.
California has had its own milk pricing system for dairy since the 1930's, separate from that operated by the federal government in other states. The California Department of Food and Agriculture sets minimum prices that must be paid to farmers in the state for five classes of milk.
In recent years, California's prices tended to be lower than in other states. In 2011 and 2012, California's price for milk used to make cheese was frequently $2 or more lower per hundredweight of milk than in the rest of the nation.
CDFA spokesman Steve Lyle said the reason for lower prices is that milk supply exceeds demand in California.
The glut forces California producers to sell much of their milk to makers of products such as cheese, which pays much less than selling milk for drinking. And since much of the milk is sold out of state, the price farmers receive is lower to reflect higher transportation costs.
Several dairy organizations filed suit in August, alleging that CDFA failed to follow the law when it refused to increase the minimum price of milk sold for cheese to bring it in line with prices around the country.
Economists say the market itself will lift prices: as more dairymen go out of business, fewer cows will produce less milk, which in turn will lead prices to go up.
For Cameron, higher prices would mean she could keep her dairy. When she dies, she wants her children to scatter her ashes in the corrals.
"That's where I belong," she said, "...that's where I've been all my life."
and.....
http://online.wsj.com/article/SB10000872396390443389604578024180178198160.html
CHICAGO—Corn prices rose by their daily limit after the U.S. government said domestic corn supplies at the end of the latest crop year were lower than analysts expected.
Domestic corn inventories totaled 988 million bushels as of Sept. 1, the lowest level in eight years, the Department of Agriculture said Friday in a closely watched quarterly grain-supplies report. Corn supplies were below the average analyst forecast of 1.126 billion bushels in a Dow Jones Newswires poll this week.
The report, which mainly reflects stockpiles of corn harvested a year ago and stored on farms and commercial sites, shows how U.S. supplies were tight even before farmers in much of the Midwest began harvesting this fall's drought-stricken crop.
Corn futures leapt to a record in August as the worst U.S. drought in decades battered crops from Nebraska to Ohio. The USDA earlier this month projected that this fall's corn harvest will be the nation's smallest in six years.
On Friday, corn futures for December delivery rose 40 cents, the exchange-imposed daily limit on price advances, or 5.6%, to $7.5625 a bushel at the Chicago Board of Trade.
The rise in futures offset some of their losses in recent days, but prices remain down 10% from their record close on Aug. 21. Prices slumped in recent weeks as high prices cooled demand for corn from livestock producers, ethanol makers and foreign buyers.
Friday's report rekindled worries about reduced corn supplies, shifting the focus of traders back to the drought and away from softening demand for the grain, analysts said.
"The market was ripe for a rally, and this provides a necessary spark," said Sterling Smith, a futures specialist with Citigroup Inc. in Chicago.
The USDA also said soybean inventories as of Sept. 1 were 169 million bushels, above the average analyst prediction of 132 million bushels.
Soybean prices were buoyed by the jump in corn futures. Soybeans for November delivery rose 30.25 cents, or 1.9%, to $16.01 a bushel. Soybean prices have slid 10% from their record close of $17.71 on Sept. 4, amid concerns the market had become overheated and signs that this fall's U.S. harvest may not be quite as poor as once feared.
The USDA, citing new data on last year's soybean crop, said farmers produced 3.09 billion bushels of soybeans in 2011, up from the most recent estimate of 3.06 billion bushels.
"The fact that you got less corn and more beans is probably exactly the opposite of what the market expected," said Jim Gerlach, president of A/C Trading Co., a Fowler, Ind., commodities brokerage.
Some traders had expected the USDA to report higher corn inventories than predicted by analysts, because record prices have curbed demand for the grain. Also, an early harvest of this year's crop led to some supplies entering storage facilities before Sept. 1.
Stockpiles of corn at farms and commercial sites for the crop-marketing year that ended Aug. 31 were the lowest since the 2003-04 season, when the year-ending tally was 958 million bushels, USDA data show.
Also Friday, the USDA reported stocks of wheat were 2.104 billion bushels, below the average analyst prediction of 2.281 billion bushels. Chicago Board of Trade December wheat futures jumped 47 cents, or 5.5%, to $9.025 a bushel. Wheat prices often trade in tandem with corn prices because both grains can be used in animal feed.
Meanwhile, the USDA released a final production estimate for wheat this year in a separate "small grains" report that showed a minor increase.
Total wheat production this year, the USDA said, is now estimated at 2.269 billion bushels, up 1 million bushels from the most recent forecast.
and.....
http://af.reuters.com/article/commoditiesNews/idAFL1E8KSBZ820120928
UPDATE 3-Shrinking US grain supply shocks market, prices surge
* Smallest US corn stocks since 2004 -- less than 1 bln bu
* Tight corn, soy supplies forecast throughout 2012/13
* Corn futures rise, hit ceiling for daily price rise
* USDA data show feeders used wheat when corn was costly
(Updates throughout)
By Charles Abbott
WASHINGTON, Sept 28 (Reuters) - U.S. corn and wheat
stockpiles shrank far more than expected this summer, the
government reported on Friday, reigniting a rally in grain
prices on fears that strong demand and drought-decimated crops
will keep markets tight.
Corn futures surged nearly 6 percent on the Chicago
Board of Trade after the U.S. Department of Agriculture reported
corn stocks on Sept. 1 were below 1 billion bushels for the
first time in eight years. Wheat futures rose more than 5
percent, topping $9 a bushel after the data showed stockpiles
were 7 percent less than forecast.
The ending-stock figures showed that record-high corn prices
during the quarter had failed to put as big a dent in demand as
analysts expected, suggesting that prices may need to rise
higher still in the coming months to ration demand amid
heightened competition for food, livestock feed and ethanol.
The data are likely to revive global concerns over rising
food prices and supply security, and may renew calls to ease the
U.S. ethanol mandate that many blame for driving up prices.
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
IGC cuts forecasts for world maize, wheat crops
USDA surprises again with low corn stock report
GRAINS-Corn rallies limit-up on USDA data
Japan corn users ask US to ease biofuel mandate
While consumers have been bracing for higher prices after
the worst U.S. drought in half a century withered corn and
soybean crops this summer, Friday's data shows the margin of
error in supplies is even thinner than many feared.
"DOWN TO THE RIND" ON CORN AND WHEAT SUPPLY
"We may be getting down to the rind of the watermelon on the
corn and wheat," said Jim Gerlach, A/C Trading in Fowler,
Indiana.
After weeks of easing prices, the tide may be changing, he
said: "Personally, I'm moving toward a buy weakness opposed to
selling strength."
USDA's survey of farmers and warehouses showed 988 million
bushels of corn on hand -- 11 percent less than expected -- on
Sept. 1. That date is the start of the corn marketing year and
the traditional low point for supplies, as it comes before this
year's harvest gets added to the stockpiles.
Wheat stocks of 2.1 billion bushels were 7 percent smaller
than traders expected. Soybean stocks were much larger than
expected.
It was the third straight year that the USDA's September
inventory report surprised traders. The unexpectedly low corn
number is all the more shocking as many analysts were bracing
for a higher figure, artificially inflated by the unusually
early harvest that is bringing "new crop" supply into
inventories.
MORE WHEAT FOR FEED, BUT NOT ENOUGH
But supplies shrank. Even with corn prices soaring to $8 per
bushel earlier this year, demand remained heavy from exporters,
livestock farmers, ethanol plants and food makers.
Corn consumption from June-August was 15 percent smaller
than the same period a year ago, yet not enough to prevent low
stocks. USDA chief economist Joe Glauber said the corn and wheat
stocks figures showed demand was larger than expected,
especially for livestock feed.
"We're going to hear talk that we're going to have to do a
better job of rationing in the feed sector. That's not easy to
do," said Don Roose, president of U.S. Commodities.
Corn futures were limit up -- at the daily ceiling -- at
$7.56-1/2 a bushel in Chicago at midday. "Synthetic" bids, from
the options market, indicated corn was worth up to $7.60 a
bushel. Wheat futures ended the day at $8.99-1/2 a bushel, up 5
percent. Soybeans closed at $15.98, up 1.7 percent.
Wheat consumption was up by 27 percent for June-August
compared to one year ago, USDA said. Agricultural economist
Darrel Good of the University of Illinois estimated 435 million
bushels of wheat, twice the usual amount, was fed to livestock
in the three-month period.
"Wheat is corn again," said Jason Kitt of The Linn Group.
Livestock feeders use wheat as feed when corn is scarce and
expensive. While U.S. corn production is down for the third year
in a row, growers harvested 2.27 billion bushels of wheat this
year, the largest crop in eight years.
ETHANOL IN FOCUS?
Six key groups of corn users in Japan, the largest importer
of the coarse grain, asked Washington to consider a two-year
waiver of the U.S. requirement to mix ethanol in gasoline. They
said high corn prices put "great pressure" on Japanese
industries and could cut U.S. sales permanently.
U.S. food producers also hope they can reduce pressure on
corn supplies by convincing the U.S. government to relax the
ethanol mandate.
Governors of seven U.S. states have petitioned the Obama
administration to ease the mandate, saying high corn prices were
punishing beef, pork, poultry and dairy farmers. Grain supplies
data could play a part in the decision, possible in November.
U.S. meat production is projected to fall modestly this year
and by 2 percent in 2013 because of high grain prices.
Soybean stockpiles totaled 169 million bushels at the start
of this marketing year, much larger than expected, despite heavy
consumption late in the 2011/12 marketing year.
USDA also revised its estimate of the 2011 soybean crop to
3.09 billion bushels, up 1 percent. The 37 million-bushel
increase was roughly the same as the difference between the
stockpile figure and trade expectations for stocks.
http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/international/28-Sep-2012/un-criticised-on-food-security
UN criticised on food security
HONG KONG - Former Australian prime minister Kevin Rudd on Thursday criticised the UN food agency for failing to do enough on food security, as fears mount of a repeat of the 2007-2008 food crisis. Rudd told a conference in Hong Kong that the leadership of the United Nation’s Food and Agriculture Organization (FAO), based in Rome, needed to get its act together and not just release “another set of reports”. “The fact that we’re having this kind of conference is an indictment of the failure of the FAO,” he told the meeting - titled “Feeding the world: Asia’s Prospect of Plenty” - which was organised by The Economist magazine. “The execution of its mandate, which is food security, must now be done.“A practical programme against the billions of people who are hungry in the world today needs to be done - not another set of reports, not another set of committees. Action, action, action,” he told reporters later.The FAO has called for “swift, coordinated international action” this month as a sharp rise in maize, wheat and soybean prices renews fears of a looming food crisis.Drought in the United States has pushed grain prices to record highs, and the FAO has cut its global 2012 rice output forecast due to low monsoon rainfall in India.UN estimates say the world population is projected to increase by two billion people between 2012 and 2050 to around nine billion, with Asia accounting for more than half of the increase.“Hunger is the world’s most challenging problem,” UN World Food Programme China director Brett Rierson said.“There is a common perception that hunger is an African problem, but two-thirds of them are from Asia so hunger is here in Asia,” he said.Manila-based Asian Development Bank warned in April that food shortages could slow poverty reduction, and a rise of 10 percent in domestic food prices could push 64 million more Asians into poverty.
and.....
The explanation for the spike this time is that someone was covering a large short position. It's almost as good an explanation as the hurricane Isaac causing prices to climb long after the hurricane was gone (see discussion).
If prices at the pump continue to climb, US consumer spending (70% of the US economy) could be in real trouble. As it is, high prices in August already put a damper on spending. October could be far worse.
FRIDAY, SEPTEMBER 28, 2012
A massive short squeeze in gasoline futures is the explanation for the latest spike
There are numerous risks to the US economy ranging from China's potential hard landing and the Eurozone crisis to the so-called Fiscal Cliff. However it is the exogenous factors that are often the most damaging. As discussed earlier (see post), a large spike in gasoline prices could do a great deal of damage. Unlike many emerging markets nations, Americans can in fact afford higher gas prices (as painful as it is for the consumer), but the psychology of having to shell out 30-50% more than they paid just a few months ago will clearly inhibit spending across the board. Gasoline price is one economic indicator that most Americans track daily. And the shock to gasoline futures today will do a great deal of damage if it propagates to the gas pump.
The explanation for the spike this time is that someone was covering a large short position. It's almost as good an explanation as the hurricane Isaac causing prices to climb long after the hurricane was gone (see discussion).
WSJ: - gasoline futures soared 6.3% Friday--a jump some traders attributed to investors covering bets on lower prices as the current futures contract expired.
Reformulated gasoline for October delivery rose 19.8 cents to settle at $3.3420 a gallon, as the front-month contract came to an end on the New York Mercantile Exchange. By contrast, the next contract, November, finished the session at only $2.9167 a gallon.
Traders and analysts said the jump in the October contract likely was caused by investors who had bet the contract's prices would be lower, known as being caught short, and had to rush to buy futures to cover those positions.
 |
| Gasoline active futures contract (Bloomberg) |
If prices at the pump continue to climb, US consumer spending (70% of the US economy) could be in real trouble. As it is, high prices in August already put a damper on spending. October could be far worse.
Reuters: - U.S. households stretched to pay for costlier gasoline on meager income growth in August, undercutting spending on other items and pointing to lackluster economic growth.
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