Posted: Thursday, December 27, 2012 12:00 PM
'It's incredible we're producing so much milk after the year we've had'
The U.S. dairy herd was up 7,000 cows in November after having dropped every month since May.
At 9.193 million head nationwide, it is still down 20,000 head from November 2011, reflecting a tough year of high feed costs for dairymen not able to grow their own feedstuffs.
Those high feed costs are continuing, and the increase in cow numbers and production is surprising to industry insiders.
Either dairymen are finding a way to be profitable that analysts don't know about or they're going for broke, said Robin Schmahl, CEO of Ag Dairy LLC, Elkhart Lake, Wis.
Cow numbers in the 23 major milk-producing states are up 8,000 over last year at almost 8.5 million head, and November's milk production was up 1.1 percent over November 2011.
"It's incredible we're producing so much milk after the year we've had," Schmahl said.
Despite high feed costs, producers seem to have responded to higher milk prices that went from $15 to $16 per hundredweight to close to about $21 in October and November, he said.
Dairymen's response to prices is much quicker than it has been historically. But November's bearish report is putting a cloud over markets that will be hard to shake. Milk prices are already falling on a 36 cents-a-pound drop in cheese prices since early November. Producers are going to get a reality check soon, he said.
"They haven't felt that yet. It's going to be more of a shock when December milk checks come through," he said.
He expects December's base price to be $18.50 per hundredweight, with producers losing another 80 cents per hundredweight in January, he said.
Dairymen have surprised Schmahl in many ways this past year.
For example, he said, producers in the Midwest are finding homes for excess and taking $2.50 per hundredweight less than federal order prices.
Others in the West, where feed costs are higher, have suffered foreclosures or have changed their rations, yet their production seems to be strengthening. Their production numbers are still negative compared with a year earlier, but the declines are not as big, he said.
In October, New Mexico's production was down 5.9 percent, Arizona was down 4.5 percent, and California was down 3.5 percent compared with a year earlier. In November, those declines were 4 percent, 2 percent and 2.3 percent, respectively.
California's milk decline comes as no surprise, with dairymen forced to change their rations due to high feed costs, said Michael Mars, CEO of Western United Dairymen.
What is surprising, even perplexing, is California's reported increase in cows. USDA has cow numbers in the state up 2,000 in November and October over the year earlier.
"With the number of sellouts we've had, I'm very skeptical of those numbers," he said.
Just last week there was another dispersal sale of 5,000 head in Southern California, and dairymen have been sending cows to slaughter for beef to get cash, he said.
With Idaho facing some of the same feed challenges as California, he's surprised to see its production up 2.3 percent, he said.
Other states posted even higher increases. Colorado was up 6.5 percent, Kansas was up 6.1 percent, and Iowa, Michigan, Minnesota, and Wisconsin were all up 4 percent or higher.
November milk production - 23 major states
2012 2011 %change
Calif. 3,266 3,343 -2.3
Idaho 1,089 1,065 2.3
Ore. 198 197 0.5
Wash. 491 494 -0.6
U.S. 14,898 14,742 1.1
Calif. 1,780 1,778
Idaho 579 579
Ore. 123 122
Wash. 263 261
U.S. 8,475 8,472
Milk per cow
Calif. 1,835 1,880
Idaho 1,880 1,840
Ore. 1,610 1,615
Wash. 1,880 1,880
U.S. 1,758 1,739