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Home  »  Ag Sectors

Mielke: Weather impacts squeeze dairies

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By LEE MIELKE


For the Capital Press


Weather impact


USDA's weekly update reports milk production across the country is "at or on both sides of seasonal high levels."


Hot and humid weather, especially in the Southern tier of states from Florida to Arizona, was significantly influencing a down tick in milk volume. Further north, hot and humid weather moderated in some areas but milk volumes lost during the period were having difficulty recovering.


Triple-digit temperatures hit California's Central Valley and hotter-than-normal weather was expected to remain until the weekend, according to the CME's Daily Dairy Report. Temperatures are fairly typical in the Upper Midwest and Northeast leaving cows in good condition, according to the DDR. Extremely hot, dry weather in Arizona, New Mexico and Texas was putting a dent in productivity. Output is declining more quickly in Florida, where heat and humidity is impacting cow comfort.


Summer's here


Class I demand is settling into "summer mode," according to USDA. Most schools have closed for the summer, thus bottling schedules are geared toward retail needs, which aren't great. Cream market trends were firming and butter prices were trending slightly higher, but that may reverse with this week's drop in cash butter. Cream demand is showing gains from ice cream accounts with increasing interest noted. Offerings are moderate to heavy for this time of the season and holding up well.


Fluid milk sales continue to be a challenge to the dairy industry. USDA estimates that just over 4.4 billion pounds were sold in April, down 2.3 percent from April 2010 after being adjusted for calendar composition. Estimated sales of total conventional fluid milk products decreased 2.9 percent from 2010 though total organic fluid milk products sales increased 19.9 percent.


Dairy numbers


May milk production in the top 23 states hit 16 billion pounds, according to the Agriculture Department's preliminary estimate, up 1.5 percent from May 2010, and the highest month on record, according to FC Stone dairy economist Bill Brooks. May's 50-state total was 17.3 billion pounds, up 1.3 percent from a year ago. Revisions added 3 million pounds to the 23-state April estimate, putting it at 15.5 billion, up 1.7 percent from a year ago.


May cow numbers in the 23 states totaled 8.45 million head, up 15,000 from April, and 103,000 more than a year ago. Output per cow averaged 1,899 pounds, up 6 pounds from 2010.


California's May milk production was up 3.7 percent from a year ago, thanks to 17,000 more cows and a 55-pound gain per cow. Wisconsin was down 1.8 percent, on a 40-pound loss per cow, though cow numbers were up 5,000 head. New York was down 1.4 percent, due to a 25-pound loss per cow, while cow numbers were unchanged. Idaho was up 5.4 percent, on 18,000 more cows and a 40-pound gain per cow. Pennsylvania was off 0.8 percent on a 20-pound loss per cow. Cow numbers were up 2,000 head. Minnesota was down 2.7 percent, on a 50-pound loss per cow. Cow numbers were up a thousand head.


The biggest increase occurred in Texas, up 8.8 percent, thanks to 20,000 more cows and a 70 pound gain per cow. Colorado was next, up 6.7 percent, followed by Arizona, up 6.4 percent. The biggest decline was in Ohio, down 5.9 percent, followed by Illinois at 4 percent, and Missouri, down 3 percent.


USDA's latest Livestock Slaughter report shows an estimated 220,000 culled dairy cows were "retired" from the dairy industry in May, down about 17,800 head from April 2011, but 10,900 more than May 2010. January-May 2011 dairy cow slaughter was estimated at 1.24 million head, up 83,300 from the same period in 2010. Compared to May 2010, culling increased in the East, Southeast and Midwest, but declined in the Southwest.


USDA's latest Livestock Slaughter report shows an estimated 220,000 culled dairy cows were "retired" from the dairy industry in May, down about 17,800 head from April 2011, but 10,900 more than May 2010. January-May 2011 dairy cow slaughter was estimated at 1.24 million head, up 83,300 from the same period in 2010. Compared to May 2010, culling increased in the East, Southeast and Midwest, but declined in the Southwest.


Cash reaction


The cash markets showed little reaction to USDA's Milk Production report Monday as it awaited Wednesday's Cold Storage data and showed little reaction to that. The block cheese price closed the last Friday of June at $2.13 per pound, up a penny on the week, 72 cents above that week a year ago, and averaged $2.13 for the week, up from $2.1125 the previous week.


The barrels closed at $2.0775, also up a penny on the week, 68 1/4-cents above a year ago, and averaged $2.0695, down from $2.0725 the previous week. Only four cars of block traded hands on the week and none of barrel. The NASS-surveyed U.S. average block price hit $1.9514, up 16.1 cents, while the barrels averaged $1.9924, up 13.6 cents.


Spot butter closed at $2.06, down 8 cents on the week, but 34 cents above a year ago, and averaged $2.10 on the week, down from $2.14 the previous week. Nine cars sold on the week. NASS butter averaged $2.1188, down 2.7 cents.


Cash Grade A nonfat dry milk closed Friday at $1.6250, down 2 3/4-cents, and Extra Grade held all week at $1.61. NASS powder averaged $1.6562, up 0.4 cent, and dry whey averaged 52.56 cents, up 0.3 cent.


Looking "back to the futures;" the federal order Class III contract's average for the last half of 2011 was $17.64 per hundredweight on May 6, $17.49 on May 13, $18.22 on May 20, $18.39 on May 27, $18.72 on June 3, and $18.34 on both June 10 and June 17.


$2 mystery


What's behind the $2 cheese, something not seen in June in three years? FC Stone dairy economist Bill Brooks said perhaps May cheese output was not as much as thought and, while the 1 1/2 percent increase in May milk production was stronger than he had anticipated, "it wasn't outside of anybody's range that they had been looking for."


He called it a "none event and the direction we kind of thought that it would, with gains over the previous year, at least in milk per cow continuing to slow down."


"We were looking at some very strong gains in milk per cow last year so it's hard to maintain that level of growth when you combine that with the wet and cool weather negatively impacting forage growth and crop growth," Brooks said. The cool weather is a good thing for cow comfort and milk production, he said, but the downside is it wasn't good for the forage and crop growth in the field.


He also pointed to the growth in cow numbers, up 9.2 million head in the 50 states. That's only 8,000 head below the five year average, according to Brooks, so cow numbers growth may be countering the slower growth in milk per cow.


Exports


Exports also contribute to the strength in cheese and the Cooperatives Working Together program announced acceptance of seven requests for export assistance this week from Dairy Farmers of America and Darigold to sell a total of 2.8 million pounds of cheddar and Monterey Jack to customers in Asia, the Middle East and Central America. The product will be delivered through September and raised CWT's 2011 cheese export total to 45.9 million pounds.


Butter jump


Bill Brooks looks for butter prices to continue to slip as we see price resistance to the $2 level and international buyers start to pull away from U.S. product in anticipation of Southern hemisphere milk production starting to pick up. The growth in the butter inventory was more than he expected. He said that we've seen larger builds in May so it's "nothing completely out of the ordinary" and price resistance from end users may have contributed to the buildup.


Inventories may have been built in early May when butter fell to $1.9250 and is now sitting in storage. By the way, the June 23 Oceania price on 80 percent equivalent butter was $2.09.


"We're in the ballpark of Oceania prices and competitive," Brooks said. Further erosion might spur additional sales, depending on the production season in the Southern Hemisphere.


There's plenty of cheese on hand as well. American type, at 620.5 million pounds, was down fractionally from April but 1 percent above a year ago. Bill Brooks points out that a drawdown in American cheese stocks has occurred only two times in May in the past 10 years.


May's total cheese inventory was put at 1.05 billion pounds, up 9.1 million pounds or 1 percent from April, and 21.7 million or 2 percent above a year ago.


Policy front


National Milk Producer Federation's Chris Galen defended the "Foundation for the Future" proposal. He said that dairy's existing safety net did nothing to prevent the enormous loss of equity that dairy farmers experienced in 2009 but modeling of the proposal, in particular the margin insurance program and the dairy market stabilization program, indicated that the plan would provide a better safety net than the current Milk Income Loss Contract program.


Looking ahead, analysis by the University of Wisconsin and Cal Poly shows that a midsize producer with 180 cows would receive about $5,000 more per year under the Foundation proposal, according to Galen. He attributed that to the margin insurance program and the reduction in volatility resulting from the dairy market stabilization program.


Looking ahead, analysis by the University of Wisconsin and Cal Poly shows that a midsize producer with 180 cows would receive about $5,000 more per year under the Foundation proposal, according to Galen. He attributed that to the margin insurance program and the reduction in volatility resulting from the dairy market stabilization program.


Galen admitted that's a modest increase, but pointed out that the idea behind the safety nets in the proposal is to "prevent catastrophic loss of equity." Margin insurance payouts can be improved if you elect to take out a higher insurance level and that is an option the proposal includes.


He also reiterated that the proposal is not designed to achieve a set milk price, which is how the existing safety net is structured, but is designed to target margins. Margins are going to be highly pressured, Galen said, because of high input costs. Neither the MILC program nor the dairy price support program address increased costs in production, he said, the Foundation proposal does.


These are the types of comparisons that will be discussed during their grassroots tour around the country in July, Galen said. There are 12 cities where federation staff will meet with producers to explain and answer questions about the proposal.


Labor reform


National Milk Producers Federation this week also endorsed legislation introduced in the Senate containing comprehensive reform of U.S. immigration laws and "importantly, provisions to ensure continued access to qualified workers by America's dairy farms."



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