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January 18, 2002

2002 outlook for
dairy industry mixed

Like most recent years, the U.S. dairy industry faces several uncertainties in 2002, Mary Keough Ledman of Keough Ledman Associates told attendees at a dairy conference held during the recent American Farm Bureau Federation convention. However, the outlook isn't entirely bad.

"There is a lot of uncertainty as we enter 2002, so get ready to ride," Keough Ledman said. "In general [however], 2002 looks like a good year—just maybe not as good as 2001."

According to Keough Ledman, there are several factors that will affect the dairy industry this year.

—Declining government support has resulted in greater price volatility.

—The one-sided growth of dairies in western states is resulting in greater variability of U.S. milk production.

—Prices for cheese, butter and nonfat dry milk are expected to be stable to lower in 2002 compared to 2001.

The availability of replacement heifers and environmental issues top the list of problems affecting the long-term viability of the industry.

"We are burning up cows at a faster rate than ever before," she said. "I truly believe the U.S. dairy herd has to remain at current levels in order to maintain the herds. Cow numbers have reached a critical level given current cull rates."

Keough Ledman pointed to statistics on dairy herd averages to illustrate the growing need for replacement heifers. She said 80 percent of U.S. dairy operations have less than 100 cows and produce almost 30 percent of the U.S. milk production. Just over 17 percent of U.S. dairy operations have 100-499 cows and produce 35.3 percent of the U.S. milk production. In contrast, only 0.3 percent of U.S. dairy operations have 2,000 or more cows, and those operations produce about 11 percent of the U.S. milk production.

"The only size group of dairies that are growing are those with 200 cows or more," she said. "With fewer dairies with 100 cows or less, you'll have less replacement heifers, so that supply of replacement heifers is drying up."

Another long-term issue Keough Ledman addressed is the increasing impact of environmental policy on the dairy industry. She believes dairy herds of 100-500 cows will feel the most impact from trying to comply with environmental regulations.

"This is not just a `big' dairy issue," she said. "It is likely to be the largest cost factor impeding generational dairying in traditional milk producing regions."

Keough Ledman expects the farm bill debate will continue to be contentious this year.

On a positive note, she said international trade will be a bright spot for the industry. "I believe the United States will be a good source for dairy products around the world in the next five to 10 years."

Loan rate determination on hold

The U.S. Department of Agriculture announced, Jan. 4, that it will wait for final Congressional action on the farm bill before determining annual loan rates for the 2002 crops.

"We feel it is prudent and responsible to wait to announce loan rates until the intent of the Congress becomes more clear through the farm bill process in order to avoid confusion for farmers," said Agriculture Secretary Ann M. Veneman. "We urge the Senate, upon their return, to work in a bipartisan manner to complete a farm bill that is fair, responsible and helps a broader range of producers. If it appears the Congress will not complete a farm bill in time for this year's crops, we then will make the determinations and announcement."

The House of Representatives has passed HR 2646, which is applicable to the 2002 crops. The Senate is expected to resume consideration of a farm bill upon its return later this month.

Timely completion of a Senate bill and a subsequent conference committee are likely to produce new authorities applicable to the spring planted crops. That legislation would specify loan rates for the 2002 crops.

Cock crows for Rooster.com

Rooster.com, a leading U.S. agricultural e-business web site targeted at farm services and backed by industry giants, ceased operations in December due to a lack of funds.

According to a Reuters report, Rooster, launched in the spring of 2000 and touted as "a virtual electronic mall for the agricultural industry," was widely seen as a bellwether pioneering web site for the farm sector due to its deep-pocketed founders.

Those included agribusiness giant Cargill Inc., the big farmer cooperative Cenex Harvest States, and agricultural chemicals and seed giant DuPont Co. Other industry leaders soon followed suit, making the site's backers a virtual Who's Who of agriculture: top grain processor Archer Daniels Midland Co.; grain merchant The Andersons; processing and trading giant Bunge Corp.; Louis Dreyfus Corp., a top exporter; and IMC Global, the world's largest fertilizer producer.

The web site, which offered news and market commentary, also operated web "storefronts" for grain elevators and farm businesses. The Rooster statement said that the site had more than 30,000 registered users as of Dec. 11, the day the web site closed down.

The closure of Rooster comes on the heels of a collapse in February of Pradium.com, a projected Internet-based cash market for trading grains also backed by Cargill, ADM, Cenex, Louis Dreyfus and DuPont.

Pradium and Rooster announced a merger on Feb. 15, citing a search for "synergies" for the related web efforts.

Notable Quotables

"God has richly blessed America. And for that, we ought to be grateful. We're a nation that has gone through incredible suffering and hardship. Yet, as a result of it, we're a strong nation and a united nation. And 2002, in my judgment, is going to be a great year."

— President George W. Bush