Author: Michael Ferrari, PhD
VP, Applied Technology & Research

We have noted in the weekly US updates to our clients that July US milk production and yield numbers may need slight revision as a result of the heat event which occurred early in the month.  Total seasonal numbers for the US and specifically California are still going to be supported by a favorable weather pattern; however, the mini-heatwave that affected some of the producing regions in central California will likely shave a small amount off of the July production estimates.  We did confirm that temperatures in these counties were between 102°F and 107°F for several hours per day (for between three and five days), so we do anticipate that most July values will see a downward 1-1.5% revision for CA production numbers (following verification).  This event notwithstanding, the longer range pattern has still been very good for California, so while July may exhibit a slight decrease, August looks to be strong with limited heat stress – the maxtemp forecast for the next two weeks is shown below.

 

While the weather has been good for dairy, the same can not be said on the feed side.  The pattern in the heart of the corn belt started off particularly good this year, and with a relatively healthy stocks situation, it looked like feed costs might be kept under control.  Following the favorable start (early plant in many states), muchof the US Midwest was entrenched in the grips of an extended heatwave, which based on numerous field surveys performed from mid July through the end of last week, are indicating a higher prevalence of heat stress through smaller ears and reduced kernel counts for corn, and delayed development in wheat.  Add to this the current crisis revolving around wheat in Russia/Kazakhstan, and support for higher feed prices is all but inevitable through 4Q10.   We do expect the US corn, bean and wheat crops to all finish with healthy numbers, but it is unlikely that they will be as high as consensus USDA estimates; we did have this heat figured into our seasonal outlook, so we are not revising our outlook.  Further, the situation in Russia does look to improve, and growers there are probably through the worst part of this pattern.  So longer term there are factors that should limit how high feed prices should rise, but in the short term, we anticipate the volatility in the futures markets to keep a premium on feed costs at least through September, and likely through much of the US harvest.