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Dairy production flat, but prices increase

Dairy prices continue to increase, columnist Lee Mielke says in this week's roundup of industry news.


For the Capital Press

Published on January 24, 2014 12:02PM

Lee Mielke

Lee Mielke

December milk production in the top 23 producing states totaled 15.7 billion pounds, according to preliminary data in USDA’s latest Milk Production report issued this week, up slightly from December 2012. The 50-state output, at 16.8 billion pounds, was down fractionally from a year ago. Revisions subtracted 32 million pounds from the original November estimate, now put at 14.9 billion, up just 0.1 percent from November 2012. Total 2013 milk output in the U.S. hit 201.19 billion pounds, up from 200.32 billion in 2012.

December 2013 cow numbers totaled 8.5 million head, up 1,000 head from November and 6,000 head above a year ago. Output per cow averaged 1,846 pounds, down 1 pound.

California output in December was up 1.6 percent from a year ago, thanks to a 30-pound gain per cow and 1,000 more cows in the herd. Wisconsin was down 1.9 percent, on a 35-pound loss per cow as the cold weather took its toll. Cow numbers were unchanged. Idaho was down 1.1 percent, despite a 30-pound gain per cow but cow numbers were down 15,000 head. New York was up 1.6 percent on a 20-pound gain per cow and 3,000 more cows. Pennsylvania was off 0.7 percent, due to 4,000 fewer cows. Output per cow was unchanged. Minnesota was down 2.5 percent on a 25-pound loss per cow and 5,000 fewer cows.

Michigan was up 0.8 percent, on 4,000 more cows, though output per cow was off 5 pounds. New Mexico was down 1.8 percent, due to a 50-pound loss per cow. Cow numbers were up 2,000. Texas inched 0.2 percent lower, thanks to a 35-pound loss per cow. Cow numbers were up 7,000 head. Washington state was up 1 percent on a 5-pound gain for cow and 2,000 more cows in the herd.

USDA’s Livestock Slaughter report estimates 256,700 culled dairy cows were slaughtered under federal inspection in December 2013, up 7,600 from November 2013, but 2,100 less than December 2012. The 2013 total was estimated at 3.125 million head, 23,400 more than 2012.

Prices increase

Dairy product prices saw healthy gains at this week’s Global Dairy Trade auction as the weighted average for all products jumped 1.4 percent, led by a 10.8 percent surge in butter and 10.4 percent increase in Cheddar cheese. The only decline was skim milk powder, off 0.5 percent, while whole milk powder inched up 0.1 percent.

The average butter price equated to about $2.1124 per pound, up from $1.9155 in the Jan. 7 event ($2.0609 per pound on 80 percent, up from $1.8688). The Cheddar average was $2.3282 per pound, up from $2.1119; skim milk powder, $2.1311, up from $2.1264, and the whole milk powder average was $2.2419 per pound, up from $2.2380 in the last event.

The bulls found plenty to feed on the week of Jan. 20 and the gains at the GDT helped fuel prices in Chicago where the Cheddar blocks closed Friday morning at a record high of $2.31 per pound, up 8 cents on the holiday-shortened week, 66 1/2-cents above a year ago, and the highest level since May 2008. The barrels closed at a record $2.2750, up 7 1/4-cents on the week and 70 1/4-cents above a year ago. Two cars of block traded hands Friday, the first sale of block since December 20, 2013 and then it was only one car, while three cars of barrel were sold last week, two the week before that, and none this week. The lagging National Dairy Products Sales report shows the U.S. average block price at $2.0722 per pound, up 6.8 cents, and barrels at $2.0424, up 9.3 cents.

Cheese production levels continued to be mixed the week of Jan. 13, according to USDA’s Dairy Market News. Increased milk supplies were available for cheese makers. Sharply higher prices enticed some processors to raise production, while others worried about higher priced inventories. Super Bowl orders are often the last big push for retail cheese demand. Good export orders for the first quarter of 2014 are also helping to clear inventories.

Cash butter was soaring as well and shot up to $1.94 on Wednesday, the highest it has been since Oct. 9, 2012, but relapsed Thursday and Friday, closing at $1.89 per pound, up 3 3/4-cents on the week and 38 1/2-cents above a year ago. Twenty four carloads found new homes on the week and the NDPSR average hit $1.6244, up 5.4 cents.

Many butter manufacturers are busy filling current export orders behind good sales, according to DMN. There are concerns about the increased butter prices possibly reducing export interest as the U.S. price converges with the GDT and Oceania prices. The market tone is firm with inventories being tighter than normal for this time of year. Moderate amounts of cream continue to find its way to the churns resulting in higher production levels. Domestic demand is good in the Northeast and Central, while above expectations in the West.

Cash Grade A nonfat dry milk closed at $2.05, down 4 3/4-cents on the week. Extra Grade, in its last week of trading, closed at $2.09, up a penny. Twenty-five loads of Grade A sold this week. The NDPSR average was $2.0362 per pound, up 2 cents, and dry whey averaged 59.5 cents per pound, up 0.2 cent.

Nonfat dry milk prices are unchanged to higher in a firm market, according to DMN. Production levels are mostly steady to higher. Domestic demand trends are mixed and dry whey prices moved higher this week across the nation.

Class I base price $22.02

Meanwhile, the Agriculture Department announced the February 2014 Federal order Class I base milk price this week at a record high $22.02 per hundredweight, up 54 cents from January, $3.81 above February 2013, the highest since September 2011’s $21.78, and equates to about $1.89 per gallon.

The AMS-surveyed butter price used in calculating the Class I value averaged $1.5939 per pound, down 4.7 cents from January. Nonfat dry milk averaged $2.0270 per pound, up 8.5 cents; cheese averaged $2.0308 per pound; up 17.3 cents; and dry whey averaged 59.39 cents per pound, up 2.7 cents.

December 2013 butter stocks slipped to 111.45 million pounds, down 10.2 million pounds or 8 percent below November 2013 and were down 41.6 million pounds or 27 percent below December 2012, according to the Agriculture Department’s preliminary data in this week’s Cold Storage report.

American-type cheese, at 618.79 million pounds, was up 4.8 million pounds or 1 percent from November but was down 16.8 million or 3 percent below a year ago. The total cheese inventory on Dec. 30 stood at 1.01 billion pounds, up 12.43 million pounds or 1 percent above November but was down 14.06 million pounds or 1 percent below a year ago.

Speaking of cold, Old Man Winter made sure he’s not forgotten this week, bearing down again on the Midwest and the Northeast in particular with snow and bitter cold that may be around for some time. Reports of thousands of canceled flights and discussions about “Polar Vortex” were commonplace. Dairy farmers know all too well the stress that comes with that kind of weather. Pre-storm warnings generally spur fluid milk sales as residents hunker down at home.

Export aid approved

Cooperatives Working Together accepted 13 requests for export assistance this week to sell 2.03 million pounds of cheese and 2.46 million pounds of butter to customers in Asia, Europe, the Middle East and North Africa. Product will be delivered through June and raised CWT’s 2014 cheese exports to 2.74 million pounds, plus 2.99 million pounds of butter to seven countries.

Milk production across the U.S. is trending higher along the seasonal trend, according to USDA’s weekly update. Bottling demand has improved.

Milk production in Europe is increasing at accelerated levels, due to high milk prices and margins, mild weather and expanding herds in some countries. Milk production totals for November showed year over year increases of 3.8 percent for France and 19.7 percent for Ireland. For December, the UK realized a 10.7 percent increase. Producers in some countries are going over quota levels and willing to pay the levy rather than reduce production.

Eastern European milk output is also expanding with estimated increases of 2-3 percent. Weather is also mild and supportive of production. Russian demand for butter, cheddar cheese and whey is providing export opportunities for Eastern manufacturers and Russia has begun to lift its ban on Lithuanian dairy products.

Australian milk production has begun to decline at an accelerated pace as Victoria, South Australia, and portions of New South Wales are in the midst of an intense heat wave. Temperatures well over 100 degrees Fahrenheit are lowering cow comfort and impacting production.

New Zealand continues to show projected increases of 6 percent or more over last year’s drought shortened production season. The focus continues to be on powder production with some producers seeing the combined margins for butter and skim milk powder, equaling or surpassing those of whole milk powder.

Leahy argues for supply management

In dairy politics, as I reported last week, the National Milk Producers Federation surrendered its fight for its Dairy Market Stabilization Program, which included the controversial supply management provision. House Speaker John Boehner had threatened that he would not allow it to come to the floor for a vote, calling it a “Soviet-style dairy program.”

But Sen. Patrick Leahy, D-Vt., called Boehner’s analysis “dead wrong,” according to an interview by Vermont Public Radio’s Bob Kinzel and featured in the Jan. 21 Rutland Herald. Leahy said, “The fact is it is voluntary, it has a sunset provision in it we ought to give it a try. The farmers I talked with around Vermont much prefer this to the system that Speaker Boehner and others support.”

The article quotes Leahy, “It’ll get resolved. It’s just who blinks first. We have the votes in the Senate. Right now we have the votes in the House; it’s whether they’ll knuckle under the speaker and the lobbyists or whether they’ll stick with the farmers. It’s really that simple a choice.”

Rep. Collin Peterson, D-Minn., says a compromise is in the works but hasn’t agreed to anything at this point and still supports the DMSP.

National Milk is exploring an alternative approach to the dairy safety net, according to NMPF’s Chris Galen. Galen said the plan would hopefully include a margin insurance program with “the proper economic incentives for participants that reflect and help address supply and demand signals that also have some cost control mechanisms.”

NMPF is engaging with Ag Committee staff on an alternative dairy safety net which, Galen said, will “include certain inducements to achieve a supply demand balance using the framework of our margin insurance program.” He said they’re hopeful those adjustments would be to the program’s margin insurance payout structure or the premiums that participants would have to pay, to name a few.

“We still want and need to have any alternative approach to offer an effective risk management tool for dairy farmers,” Galen charged, and pledged that NMPF will not support any program that “doesn’t effectively address the needs of our members throughout the U.S.” The process is ongoing, according to Galen.

California federal order ahead

Meanwhile, momentum is building toward a federal order in California. Members of the California Dairy Task Force met this week in Sacramento in an attempt to revitalize the dairy industry in the Golden State. The task force is an informal group of dairy producers, cooperatives and processors established by Secretary of Agriculture Karen Ross. Several issues were discussed including the quota system, investment decisions, risk management and alternative pricing to the Class 4 markets.

“From the time the task force started until now, we have seen a dramatic increase in interest to go towards a California federal order,” Rob Vandenheuvel, GM of the Milk Producers Council, said.

Dairymen are still waiting on details regarding a federal order. The cooperatives have been working diligently in putting together a draft order to be submitted to USDA. The federal order process is lengthy and there was some discussion by task force members about what can be done in the interim. Text and audio of the complete interview is available at www.dairyline.com.


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