September 5, 2017 at 3:32 p.m.
Cheese demand detracting attention from large milk supply
February cow numbers in the 23 states totaled 8.51 million head, up 8,000 from January and 102,000 more than a year ago. The mild winter was good on output per cow, which averaged 1,782 pounds, up 117 pounds from a year ago but again the data is skewed by the extra day.
California production was up 10.9 percent, including the extra leap year day (up 7.1 percent minus the extra day) on 28,000 more cows than a year ago and a 165 pound gain per cow. Wisconsin was up 8.2 percent on a 130 pound gain per cow though cow numbers were unchanged (up 4.4 percent minus the extra day).
New York was up 6.8 percent, including the extra day, on a 110 pound gain per cow. Cow numbers were unchanged. Idaho recorded a 7.9 percent increase on 7,000 more cows and a 110 pound gain per cow. Pennsylvania was up 3.5 percent despite a 2,000 cow loss but output per cow was up 60 pounds. Minnesota was up 5.6 percent despite a loss of 5,000 cows but output per cow was up 100 pounds. There was only one state showing a drop in production from a year ago when deleting the extra day of production and that was Vermont.
Cheese production across the U.S. continues to surpass year ago levels, according to USDA. Increased milk production is pushing surplus milk to the cheese vat. Spot loads of milk are being discounted to clear to some facilities. Export sales are helping to move some of the excess production.
FC Stone dairy broker Dave Kurzawski, in a March 20 DairyLine interview recorded prior to release of the February Milk Production report, admitted that the gains in the cheese market are a surprise considering how much milk is available but credits domestic cheese demand. He reported there are good retail promotions occurring plus the Easter/Passover holiday is a factor as are export prospects. "That has put the milk production picture on the back burner," he said.
Speaking of cheese exports; Cooperatives Working Together (CWT) accepted 15 requests for export assistance this week to sell a total of 3.77 million pounds of cheese and 1.495 million pounds of butter to customers in Asia, the Middle East and Africa. The product will be delivered through September and raised CWT's 2012 cheese exports to 34.2 million pounds and 30.3 million pounds of butter.
Butter production remains heavy as processors handle seasonally building milk and cream supplies. Buyers are seeing increased retail interest, USDA reports. Feature activity has been active and prices are lower than a year ago. Retail sales are indicated to be increasing.
Demand has also been good for bulk butter, often from buyers seeking to secure a physical hedge at current prices. The overall butter supply is moderate to heavy. Demand is higher for cream based, higher-class items ahead of the Easter and Passover holiday. Cream shipments to ice cream plants have also improved and taking increased volumes, according to USDA.
Milk production is very strong for this time of year almost everywhere, helped by mild weather, according to USDA. Central region milk supplies have surged. California output remains well above a year ago. Arizona output is heavy and is taxing plant capacity. Pacific Northwest production remains above the seasonal trend and output in Utah and Idaho is near to slightly ahead of expected seasonal trends. Florida's production is near the seasonal peak and at flush levels in the Southeast. Northeast and Mid-Atlantic production continues to increase. The volume is challenging capacity in a number of areas.
Milk production in New Zealand and Australia continues to run above a year ago as well. Weather in both countries has been favorable, except for heavy rainfall and flooding in the northern regions of Victoria in Australia. New Zealand milk output is quite positive compared to a year ago and many of the positive factors that New Zealand experienced during the current season are mirrored in Australia. Producers and handlers continue to project a strong 3 percent annual increase with 4 percent plus possible.
Prices fell in this week's New Zealand-based Global Dairy auction, according to the March 20 CME Daily Dairy Report. Declines occurred in every category from the previous auction. The average price for Cheddar cheese for May through August was $1.4125 per pound, significantly lower than current U.S. Cheddar.
Back on the home front; USDA estimates January fluid milk sales at 4.6 billion pounds, down 2.7 percent from January 2011. When adjusted for calendar composition, sales were estimated at 4.7 billion, also down 2.7 percent. January sales totaled 4.45 billion pounds, down 5.5 percent from January 2011. Sales of organic milk products, at 193 million pounds, were up 18.3 percent but organic sales only represented about 4.2 percent of total fluid sales, according to USDA.
Looking "back to the futures;" the average Class III milk price for the first six months of 2012 stood at $16.35 per hundredweight (cwt.) on February 3, (after factoring in the announced January and February Class III milk prices) $16.19 on February 10, $16.08 on February 17, $15.69 on February 24, $15.65 on March 2, $15.77 on March 9, $15.99 on March 16.
In politics; the California Department of Food and Agriculture (CDFA) announced it will hold a hearing May 31-June 1 to consider amending the California Class 4b minimum milk price formula. You'll recall I reported two weeks ago that a number of dairy producer organizations and cooperatives called on CDFA to do so.
California's 4b milk price had lagged the comparable Federal order Class III price for some time, as I have regularly reported here, primarily because of the way whey is factored, make allowances, etc. and has averaged $2.66 per cwt. below the FO Class III since CDFA put a new pricing formula in place in September, according to the Milk Producers Council (MPC).
California law requires CDFA to announce a Class 4b price that is in a "reasonable and sound economic relationship" with the national value of manufactured milk products," charged MPC in its recent newsletter. "The practical reality is that we currently have a Class 4b formula that is structurally incapable of staying in a reasonable and sound economic relationship with what cheese manufacturers must pay around the country."
The nation's large dairy cooperative, Dairy Farmers of America (DFA) held its annual meeting this week in Kansas City. Dairy Profit Weekly editor, Dave Natzke, was there and reported details in Friday's DairyLine.
Characterizing 2011 as a "good to great" year for DFA members and generally good for the overall co-op, DFA president and CEO Rick Smith reported net sales rose $3 billion, to nearly $13 billion last year, Natzke reported. Milk payments to producer members increased to nearly $8 billion, with an average pay price of $20.50 per hundredweight. However, costs associated with the acquisition of Kemps Dairy resulted in a net loss of $36.7 million to the co-op.
Noting slumping milk prices and continued high operating costs, Smith said 2012 will be a challenging year for DFA members, and one means to address that in the future will be dairy policy reform. Smith said the co-op remains fervently in support of the Dairy Security Act, proposed dairy policy based on the National Milk Producers Federation's Foundation for the Future program.
He said the current level of milk production growth was a recipe for a crisis, and that the Dairy Security Act would have helped keep milk supply in balance with demand by sending early signals of shrinking profit margins and the need to cut milk production,
Smith also announced DFA's plan to construct a new dairy ingredient plant in Fallon, Nevada. The plant, due to be operational in summer 2013, will produce whole milk powder for export, and use about 2 million pounds of milk per day.
Milk supply is on the minds of dairy leaders in the rest of the country as well.
In the past week, initiatives in New York and Wisconsin were introduced to increase milk production by 15 percent in each of those states, while in California, Land O'Lakes Western Region producers were informed they needed to reduce milk production beginning April 1, or face severe financial penalties for producing above their base levels.
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