Milk production increases in February

By LEE MIELKE

For the Capital Press

Columnist Lee Mielke reviews the week's dairy news.

The USDA’s preliminary data show February milk production in the top 23 producing states at 14.9 billion pounds, up 1.4 percent from February 2013.

The 50-state total, at 15.9 billion pounds, was up 1.1 percent. Revisions added 104 million pounds to the original January 23-state estimate, now reported at 16.2 billion pounds, up 1.3 percent from a year ago.

February cow numbers in the 23 states, at 8.51 million head, were down 1,000 head from January but 13,000 head more than a year ago.

Output per cow in the 23 states averaged 1,753 pounds, up 21 pounds from a year ago.

California was up a hefty 5.3 percent, thanks to a 95 pound per cow increase and 1,000 more cows. Wisconsin was down 2 percent on a 35 pound loss per cow. Cow numbers were unchanged.

New York was up 0.2 percent on 5,000 more cows. Output per cow was down 10 pounds. Idaho was up 2.6 percent despite cow numbers being down 11,000 head. Output per cow was up 80 pounds. Pennsylvania was down 0.2 percent despite a 5 pound gain per cow. Cow numbers were down 3,000.

Arizona was up 2.2 percent on a 25 pound per cow gain and 2,000 more cows. Michigan was up 0.7 percent on 3,000 more cows. New Mexico was off 1.4 percent on a drop of 35 pounds per cow. Cow numbers were up 1,000. Texas was up 3.2 percent on a 35 pound gain per cow and 5,000 more cows. Washington state was up 3.1 percent on a 30 pound gain per cow and 4,000 more cows.

South Dakota was added to the monthly report and Missouri was removed. The inclusion of South Dakota and exclusion of Missouri accounted for 65 million of the 104 million pound revision to the 23-state milk production total for January 2014. The remaining 39 million pounds were a result of the normal revision process.


Cull cow number shrinks


Meanwhile, the USDA’s latest Livestock Slaughter Report shows 237,000 culled dairy cows were slaughtered under federal inspection in February, down 33,000 head from January and 22,000 head less than February 2013. Thus far in 2014, 507,000 dairy cows were “retired” from the dairy business, down 49,000 from this time a year ago.

As it always does, USDA’s monthly Livestock, Dairy & Poultry Outlook mirrored dairy projections contained in its latest World Agricultural Supply & Demand Estimates report issued Monday. The Outlook says dairy cow culling remains strong, but prices for replacement heifers and dairy calves are higher than last year, suggesting that herd expansion could be in the offing. Last month’s forecast of an expansion beginning during in 2014 was held over this month.

Milk per cow was also unchanged from the February forecast of 22,230 pounds per cow. Growth in output per cow was below the 5-year average in January. It is likely that the colder than normal winter in the upper Midwest, combined with the apparent variable forage quality of last year’s hay crop, contributed to lower than expected output per cow.

In contrast and despite drought conditions, milk per cow increased in California and underpinned January’s nearly 5 percent year-over-year rise in milk output in that state. A return to more normal forage quality this spring in most of the United States will likely boost milk per cow in the second quarter. The milk production forecast was unchanged from February at 205.7 billion pounds for the year.


Some exports increase


Commercial milk equivalent exports increased this month to 12.4 billion pounds on a fats basis based on strong year-to-date movement of cheese to Mexico and South Korea. In addition, butter exports to North Africa and Middle East countries were stronger than earlier forecast, helping lift export forecasts. Exports on a skim solids basis were unchanged from last month’s forecast at 38.2 billion pounds as increased lactose and cheese sales were offset by slightly lowered forecasts of skim milk powder and whey exports. Imports on both a fats and skims-solids basis were unchanged from February to 3.7 billion and 5.3 billion pounds, respectively.

Dairy product prices, and consequently milk prices, are expected to remain high for the remainder of 2014. Strong demand, both foreign and domestic, will support record and near-record prices despite increased competitor supplies.

Speaking of high prices, the 40-pound Cheddar blocks set a record high this week, closing Friday at $2.4275 per pound, up 6 1/2-cents on the week and 72 3/4-cents above a year ago. The 500-pound barrels closed at $2.31 per pound, down a penny from the record set Jan. 30, but up 4 3/4-cents on the week, 64 1/2-cents above a year ago, and an unsustainable 11 3/4-cents below the blocks.

It was the fifth consecutive week of gains for spot cheese, and amazingly, there hasn’t been a sale of block cheese at the CME since Feb. 20 and then it was only two carloads. Eight cars of barrel were traded this week. All eyes are on the precariously high cheese prices, just waiting for the expected reversal. The lagging National Dairy Products Sales Report-surveyed block price fell to $2.2044, down 1.7 cents, while the barrels averaged $2.2344, up 2 cents.

Increased milk supplies are helping increase cheese production, according to USDA’s Dairy Market News. Good demand from domestic buyers is credited with keeping block supplies tight. Buyers are looking to acquire inventory for Easter/Passover demand. Export demand continues to move a larger percentage of cheese out of the country.

Cash butter, after holding close to $1.88 for three weeks, closed Friday at $1.92, up 4 cents on the week, 8 cents away from $2, and 22 cents above a year ago. Two cars sold on the week. NDPSR butter averaged $1.8396, up 1.7 cents.

DMN says butter manufacturers are busy fulfilling good export orders, especially in the West, along with increased domestic retail demand for the upcoming Passover and Easter holidays. The market tone is firm as several butter makers are unable to grow inventories due to better than seasonal demand. Stocks of butter are light to moderate.

Grade A nonfat dry milk closed at $2.05 per pound, up a penny on the week and the first price movement since March 6. NDPSR powder averaged $2.0984, down 0.5 cent, and dry whey averaged 65.06 cents per pound, up 0.2 cent.

Dairy farm margins continued to improve through the first half of March, according to the latest Margin Watch from Chicago-based Commodity & Ingredient Hedging LLC., due mainly to a mid-month surge in milk prices while feed costs increased as well since the end of February. Nearby Second Quarter margins have now reached the historic highs of 2004 while deferred margins are likewise historically strong, at or above the 90th percentile of the past 10 years.

Milk continues drawing support from the spot cheese market, with block cheddar prices at the CME reaching new all-time highs last week. January cheese and curd exports of 70.8 million pounds were up 3.3 percent from December and 46 percent higher than the previous year. The January numbers were the largest monthly commercial cheese trade on record for the U.S., with exports accounting for 7.8 percent of total cheese production for the month.

It should be noted that most of this strength followed business executed at lower prices during Fourth Quarter 2013 and there is some concern that current prices may discourage future demand. There are signs that U.S. dairy product prices are becoming expensive on the world market with milk production recovering in other exporting countries.

Feed prices, meanwhile, have firmed over the past few weeks as strength in ethanol margins and the conflict in Ukraine support corn while a tightening balance sheet in the latest March World Agricultural Supply & Demand Estimates report for both corn and soybeans provides underlying support. Complete details are posted at www.cihmarginwatch.com.


Base milk price record


The Agriculture Department announced the April Federal order Class I base milk price this week at $23.65 per hundredweight, up a penny from March, $5.99 above April 2013, and again set a record high. The price equates to about $2.03 per gallon.

The four-month Class I average now stands at $22.70, up from $18.16 at this time a year ago, $16.95 in 2012, and $17.19 in 2011. Lest we forget, the horrible year 2009 saw the Class I average at $11.56 per cwt.

The two-week NDPSR-surveyed butter average used in calculating the Class I value was $1.8308 per pound, down 1.7 cents from a month ago. Nonfat dry milk averaged $2.1007, up 2.9 cents. Cheese averaged $2.2211, down 10 cents, and dry whey averaged 64.95 cents, up 2.6 cents.


CWT aid approved


The farmer-funded Cooperatives Working Together accepted 10 requests for export assistance this week to sell 220,462 pounds of Cheddar cheese, 2.5 million pounds of 82 percent butter and 1.3 million pounds of whole milk powder to customers in Africa, Central America, Europe, the Middle East and North Africa. The product will be delivered through June 2014 and brought CWT’s year-to-date exports to 27.2 million pounds of cheese, 14.3 million pounds of butter and 2.6 million pounds of whole milk powder to 20 countries on five continents.

This week’s Global Dairy Trade auction saw the weighted average for all products drop 5.2 percent, following a 4 percent drop in the March 4 event. The downfall was led by a 10.7 percent plunge in anhydrous milkfat and a 10.7 percent drop in rennet casein. Whole milk powder was down 5.8 percent. Butter was down 4.4 percent, Cheddar cheese was down 4.1 percent, and skim milk powder was off 1.7 percent.

FC Stone reports the average butter price equated to about $2.0567 per pound, down from $2.1527 in the Jan. 7 event ($2.0065/lb. on 80 percent butterfat, down from $2.1002/lb.). The Cheddar cheese average was $2.1052 per pound, down from $2.1940; skim milk powder, at $2.0792, was down from $2.1128, and the whole milk powder average was $2.0136, down from $2.1332 in the last event.

Two weeks ago, I reported that the Daily Dairy Report’s Sarina Sharp warned in the Feb. 28 Milk Producer’s newsletter that “there are growing concerns about the health of the Chinese economy.” She reports that a Bank of America-Merrill Lynch survey of investment fund managers found that nearly half believe the possibility of a “hard landing” in China is the biggest tail risk to the global economy.

She reported in the March 14 MPC newsletter that Chinese Premier Li Keqiang warned that the Chinese economy faces “severe challenges” in 2014. Beijing is hoping to enact reforms that will allow for slower but more sustainable growth, according to Sharp, but such growth may prove elusive. The pace of investment, retail sales and factory output has fallen to multi-year lows.

Chinese corporations have taken on huge volumes of debt over the past five years, and the financial services industry is bracing for a mess of defaults. Many commodity markets that depend on Chinese purchases took quite a hit last week.

So far the dairy markets have proven impervious to concerns about the Chinese economy, and indeed, by all accounts Chinese dairy product imports remain strong. But every commodity market that depends on exports must be casting a wary eye toward China, Sharp concludes.

One more factor affecting the world dairy market is the European Union ending its milk production quota system in just over a year from now. The March 14 DDR reported that, with the end in sight and milk prices at record highs, many of Europe’s dairy producers have already added cows and increased milk production.



User Comments