
By Tony C. Dreibus - Jan
26, 2011 12:50 AM ET
Milk may jump 22 percent by June as
higher feed costs drive producers to slaughter dairy
cows
Milk
may jump 22 percent by June as higher feed costs drive
producers to slaughter dairy cows, said Shawn Hackett,
president of Hackett Financial Advisors, who correctly
forecast in October that prices would advance. The 80
percent gain in corn and 31 percent advance in soymeal
in a year increased feed costs and outpaced the 13 percent
advance in milk prices. U.S. cattle slaughter rose 6
percent in December from a year earlier, in part because
dairy farmers sent more cows to meatpacking plants,
Hackett said.
“When you look at the price of milk in the U.S. and
what it costs to produce, dairy farmers are not making
a profit,”
said Hackett, forecasting $20 per 100 pounds in the
next four months. “The producer has gotten into a situation
where he’s
leveraged as much as possible. Banks won’t lend any
more. If prices remain uneconomical, he will no longer
be able to draw
loans with the hope that prices will eventually rebound.”
Dairy farmers have missed out on the booming U.S. farm
economy as higher feed costs and surplus production
cut profit. Producers expanded herds following the jump
in milk prices to a
record in 2007, just before the U.S. began its longest
recession since before World War II and unemployment
rose to the highest
level in a quarter century.
Hackett, who called milk an “amazing buying opportunity”
in October, said rising milk futures will mean higher
prices at
grocery stores. Dairy farmers have borrowed as much
money as banks will allow and, because of rising input
costs, are being
forced to sell their animals to slaughterhouses, said
Hackett, from Boynton Beach, Florida.
Liquidate Positions
Milk for February delivery gained 11 cents to $16.41
per 100 pounds on the Chicago Mercantile Exchange at
10:16 a.m. The
price has increased 24 percent this month. It may decline
in February as investors liquidate positions to capitalize
on gains
before resuming its rally, Hackett said.
U.S.
cattle slaughter in December totaled 2.92 million head,
the Department of Agriculture said on Jan. 21, up 6
percent from a year earlier. Red-meat output in the
U.S. touched 4.36 billion pounds, the second-straight
month production reached a record, USDA data show. Beef
output rose to 2.27 billion pounds, also up 6 percent
year-on-year, the government
said.
“Culling is extremely high for this time of the year,”
Hackett said. Reductions in the herd “really started
in December. That’s when dairy farmers realized they
were in deep trouble. They know that they can raise
capital by selling their herds so they’ve been doing
that because they have no other option.”
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