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Economic Conditions: Dairy, Ethanol, Poultry

This is the last in a series of blog posts about the economic conditions of various commodities for the quarter ended June 30.

Moderating feed costs and strong milk prices bolstered dairy earnings in the second quarter.  Profits of $3.50 to $7.00 per cwt. were common in the first quarter for non-hedged operators and compare to a 2013 average profit of 87 cents per cwt.  Second quarter profits should be as strong or stronger based on a slightly higher milk price and comparable to lower feed costs.  Class III milk averaged $22.68 per cwt. in the first six months of 2014, $4.94 per cwt. higher than the same period in 2013.

The dairy cow herd grew by 54,000 head to 9.25 million head from November through May, resulting in a 1.1 percent increase in milk production.  Cow slaughter through May was down 143,000 head compared to 2013.

Ethanol producers experienced favorable operating margins through the first half of 2014 as a result of relatively strong pricing and favorable inventory levels. Lower corn prices also continue to favorably impact ethanol producer profits. The forward-looking economics are favorable for the industry for most of 2014. However, the industry still faces some uncertainty regarding pending EPA proposed reduction to the 2014 volumetric obligations in the Renewable Fuels Standard. More recently the industry also slightly curtailed production due to difficulties in obtaining sufficient railcars to move finished products.

Egg producers also experienced strong second quarter profits, driven by record egg prices and lower feed costs.  With a late April Easter this year, the typical seasonal price decline was delayed a month, boosting the second quarter average.  In addition, demand for shell eggs and egg products strengthened as consumers looked for economical sources of protein amid soaring meat costs.  Markets for further processed products, especially liquid egg whites, were strong as fast food providers offered healthier options on breakfast menus.  Uncertainty surrounding the implementation of California’s Proposition 2 on January 1, 2015, has tempered significant expansion plans as well as the tight soybean complex.  Any meaningful expansion will most likely occur in the further processing segment due to historically high margins.

In general, 2014 egg prices have easily outpaced year earlier prices with several categories at all-time highs.  Midwest graded shell eggs averaged $1.40 per dozen in the second quarter compared to $1.13 per dozen in 2013.  Breaker prices neared historical highs averaging $1.01 per dozen compared to 65 cents per dozen, while liquid whole egg averaged 93 cents per pound versus 60 cents per pound the previous year.  Liquid egg whites were at all-time highs and averaged $1.21 per pound compared to 66 cents per pound in the second quarter of 2013.

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