September 5, 2017 at 3:32 p.m.

Where is the silver lining?

By Lee Mielke- | Comments: 0 | Leave a comment

Farm milk prices continue to head down. The Agriculture Department announced the January 2012 Federal order benchmark Class III price at $17.05 per hundredweight (cwt.) down $1.72 from December but $3.57 above January 2011, $2.82 above California's comparable 4b cheese milk price, $2.82 above California's comparable 4b cheese milk price, and equates to $1.47 per gallon.
Commercial disappearance and the production of dairy products finished 2011 strong and rounded out a big year of output and usage, according to USDA data reported by Jerry Dryer, editor of the Dairy and Food Market Analyst.
Cheese production was up 1.7 percent (173 million lbs.) to a record high 10.609 billion pounds and commercial disappearance grew by 3 percent (317 million lbs). American cheese disappearance grew 1.2 percent (49 million lbs) and other cheese, by 4.2 percent (268 million lbs). Dry whey output fell about 1 percent (10 million lbs to 950.6 million) and commercial disappearance was down 0.9 percent (8 million lbs to 952 million lbs).
Butter production increased a whopping 15.4 percent (241 million lbs) and commercial disappearance was up 10 percent (163 million lbs). Milk powder (NFDM and SMP) output neared the two-billion-pound threshold at 1.964 billion; up 8 percent (147 million lbs). Commercial disappearance was up even more, wrote Dryer, plus 8.8 percent (159 million lbs).
He also touched on the growing milk supply and, based on plant operators he has talked to, warned that "the traditional spring peak in daily milk production is one to four months early across most of the U.S." He speculated whether there would be even more to come "as warmer weather and longer days push their way north to the milk-sheds across the upper tier of states," and posed the question; "Will there be enough plant capacity for all of the milk by March, April, and May." Several people he spoke with are concerned, he said.
Zeroing in on nonfat dry milk (NFDM), the CME's Daily Dairy Report says U.S. NFDM prices have dropped steadily the last seven months, falling 25-30 cents from the July 2011 peak. Western powder was trading for mostly $1.3350-$1.3750, according to a recent Dairy Market News' weekly survey. Buyers are often waiting for prices to stabilize before ordering too far out, according to the DDR, and inventories are building.
Meanwhile, Oceania skim milk powder prices have held mostly steady since October.DMN pegs current prices at $1.49-$1.59.
Mild winter weather across much of the country is helping to increase milk production and thus more milk is finding its way to cheese vats, according to USDA's Dairy Market News. Inventories are building as sales are reported as slow after the New Year. In most regions, the winter season has been much less stressful on the herd and increasing milk receipts at processing plants are being reported. Except for Florida, milk volumes coast to coast are building to the point that milk is not moving from one region to another to supplement shortages.
Milk volumes are increasing, but processing capacity is generally sufficient within close proximity of production at this time, according to USDA. Some milk handlers are already looking forward and questioning processing capacity during the upcoming spring flush. Cream markets are weak and pricing multiples are easing. Cream volumes are heavy and often clearing from one region to another to find processing capacity. Producers of higher-class cream product items are seeing declines in finished product orders after a recent boost from football related interest, thus more cream is available to churns from coast to coast.
The Oceania milk production season continues to trend lower, although not at an accelerated pace. Milk producers and handlers in Australia and New Zealand indicate milk volumes are maintaining levels on the downside of production.
New Zealand weather patterns are quite favorable for milk production at this time of the annual cycle. Milk handlers continue to project a 3-4 percent annual increase over last season, with some handlers adjusting their estimates to a strong four percent plus increase.
Fluctuating weather in Australia is not having an overall negative impact on milk output. Producers and handlers indicate milk volumes are lower but maintaining levels that are often higher than projected. Through December, cumulative milk production in the first half of the fiscal year was running 3 1/2 percent ahead of the previous year and producers continue to project a 2-3 percent annual increase when the current fiscal year ends in June.
Back on the home front, the Agriculture Department raised its 2012 milk production forecast in this week's World Agricultural Supply and Demand Estimates report (WASDE) after lowering it slightly a month ago. Look for output to hit 199 billion pounds, 500 million pounds from last month's projection.
Milk cow numbers were raised for much of the year as USDA's Cattle report indicated one percent more dairy cows on January 1, 2012. However, producers are holding one percent fewer heifers for addition to the dairy herd, which is expected to push cow numbers lower later in the year.
Milk per cow forecasts were raised as milk per cow in the last quarter of 2011 was higher than expected and mild weather in much of the country is supporting increased early year yields. 2011 output is now put at 196.2 billion, up 200 million pounds from last month's projection and reflect end-of-year production data and compares to 2010's 192.8 billion pounds.
Fat-basis trade estimates for 2011 were increased due to both stronger-than-expected imports of butteroil and exports of cheese during November. The skim-solids export estimate for 2011 was raised largely on relatively strong November exports of whey and skim milk powders. This strength is expected to carry into this year, thus the skim-solids export forecast for 2012 was raised as well.
With higher forecast 2012 production, cheese and butter prices were lowered. The nonfat dry milk (NDM) price was lowered to reflect slightly weaker early year prices. With stronger forecast demand for whey, the whey price forecast was raised. The lower cheese price is expected to more than offset the higher whey price, resulting in a reduced forecast Class III price.
Look for the 2012 Class III average to range $16.70-$17.40 per hundredweight (cwt.), down from the $17.10-$17.90 expected a month ago, and compares to $18.37 in 2011 and $14.41 in 2010.
Lower butter and NDM prices result in a lower Class IV price, now projected to average $16.25-$17.05, down from $16.45-$17.35 expected in the last report, and compares to $19.04 in 2011 and $15.09 in 2010. The 2012 all milk price was lowered to $18.00-$18.70, compared to $18-$18.70 expected a month ago.
The WASDE report was the topic of Dairy Profit Weekly editor Dave Natzke in his Friday DairyLine update. He began saying; "For those who follow daily dairy and feed grain markets, wholesale cheese, butter and milk powder prices have been weakening, while futures prices for corn and soybeans have increased since earlier this year."
He gave as an example, February 8 annual average 2012 Class III milk futures contracts traded 85 cents per cwt. below the average on January 5, with prices for February through March down nearly $2 per cwt. compared to a month ago.
He reported that the WASDE indicates the trend could continue and cited the rising milk production data and lowered milk price projections detailed above and warned that; "If lower milk prices aren't enough incentive for dairy farmers to reduce milk production, higher feed costs might be." USDA forecasts the season-average corn price to be 60 cents to $1.40 per bushel higher than the year before, with soybean prices up to $1 per bushel higher.
Higher beef prices might be an incentive to more culling, Natzke said. Latest USDA projections raised beef prices by $6-$14 per cwt. compared to last year.
Cooperatives Working Together (CWT) accepted 35 requests for export assistance this week from Bongards, Dairy Farmers of America, Darigold, Foremost Farms, Land O'Lakes, Upstate-Niagara subsidiary O-AT-KA and United Dairymen of Arizona to sell a total of 3.763 million pounds of Cheddar cheese and 3.411 million pounds of butter to customers in Asia, Europe, the Middle East and North Africa. The product will be delivered through June 2012.
The sales raised CWT's 2012 cheese exports to 17 million pounds plus 14.4 million of butter to 14 countries.
Looking "back to the futures;" the Class III milk price average for the first six months of 2012 stood at $17.60 on January 6, $17.28 on January 13, $16.81 on January 20, $16.85 on January 27, $16.35 on February 3, and was hovering around $16. late morning February 10.
The Livestock Gross Margin insurance program (LGM) University of Wisconsin's Dr. Brian Gould said in Tuesday's DairyLine. He said the program has been a very workable way for dairy producers to set some minimum floors on their revenue but is severely limited by a budget of just $20 million per year.
Gould said the Congressional Budget Office 10 year forecast of direct payments to agriculture is about $60 billion over the next 10 years, with $22 billion to corn producers and $11 billion to wheat. $443 million to dairy less than 0 .3 percent
He predicted continued volatility in dairy but said the LGM program works but needs to be removed from "pilot status," so more funds would become available for the LGM.
The LGM ran out of money after two months, Gould reported, but he speculated that about 2 1/2 percent of U.S. annual milk production was insured and was equivalent to what's sold on Class III futures. The relative small amount of milk represented is only because of the lack of money, according to Gould.
Gould encouraged listeners to be involved in the hearing process as the Farm Bill process moves ahead and to contact lawmakers. He said there are groups of dairy farmers that are examining changes that could be made to the LGM to make it more workable and get it out of pilot status and now is the time to do it.
A headline in the International Dairy Foods Association's January 25 Smart Brief caught my eye; "Dairy is Key to PepsiCO Growth." It quoted a story from Agweek which reported that "Dairy product sales will grow faster than other foods in developing countries in the coming years, and PepsiCo Inc. intends to be a part of that growth, a key PepsiCo executive told members of the International Dairy Foods Association Jan. 15 at the 2012 Dairy Forum in La Quinta, California.
I well remember the "beverage wars" between soda and milk a few short years ago. Guess a truce was called and competitors have joined in some fashion.[[In-content Ad]]


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