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Mielke: Production drop finally arrives, but not as steep as expected

Published on September 27, 2012 3:01AM

Last changed on October 25, 2012 7:10AM

Lee Mielke

Lee Mielke


For the Capital Press

August milk production in the top 23 states slipped to 15.3 billion pounds, according to USDA's preliminary data in its latest Milk Production report, down 0.2 percent from August 2011, and not as weak as expected but the first decrease since January 2009. The 50-state output was estimated at 16.38 billion, down 0.3 percent. Revisions subtracted 24 million pounds from the original July estimate, now put at 15.5 billion, up 0.7 percent from a year ago.

Cow numbers totaled 8.5 million head, down 4,000 from July but 32,000 more than a year ago. Output per cow averaged 1,803 pounds, down 10 from 2011.

California's milk production plunged 5.8 percent from a year ago, despite 10,000 more cows, as heat drove output per cow down 125 pounds. Wisconsin was up 4.9 percent thanks to a 75 pound gain per cow and 7,000 more cows.

Idaho was off 0.2 percent despite a 10 pound gain per cow. Cow numbers were down 4,000 head. New York was up 1.9 percent on a 35 pound gain per cow. Pennsylvania was down 1.7 percent, thanks to a 15 pound loss per cow and 4,000 fewer cows. Minnesota was up 2.7 percent, despite a loss of 2,000 cows but output per cow was up a nice 50-pounds.

Other highlights included Arizona, down 3.8 percent, on a 45 pound loss per cow and 3,000 fewer cows. Michigan was up 5.4 percent on a 50 pound gain per cow and 10,000 more cows being milked. New Mexico was off 2.9 percent on a 50 pound loss per cow and 2,000 fewer cows. Texas was down 1.9 percent, despite a gain of 5,000 cows but output per cow was down 55 pounds. Vermont was up 0.9 percent on a 30-pound gain per cow but cow numbers dropped a thousand head. Washington state's hot weather resulted in a drop of 3.3 percent from a year ago on a 35 pound loss per cow and 4,000 fewer cows.

Friday's Livestock Slaughter report showed an estimated 275,300 culled dairy cows were slaughtered under federal inspection in August, up 36,300 from July and 30,700 more than August 2011. Through the first eight months of 2012, cull cow slaughter totaled 2.038 million head, up 128,200 from 2011.

Dairy cow forecasts for 2012 and 2013 in the latest Livestock, Dairy, and Poultry Outlook remain unchanged from August at 9.215 million and 9.110 million head, respectively. But, the outlook said "the dairy cow slaughter rate and the prices of replacement heifers suggest a continued gradual decline in the dairy herd through 2013."

Echoing the previous week's World Agricultural Supply and Demand Estimates report, the outlook's reduced 2012 milk production forecast was based on lower forecast milk per cow of 21,690 pounds. Lower milk per cow is expected in the third and fourth quarters of this year due to high summer temperatures that likely adversely affected milk yields as well as tight alfalfa supplies.

Yield per cow was forecast at 21,830 pounds for 2013, unchanged from the August forecast. The slight 2013 yield increase is largely based on expected larger forage supplies.

Feed costs

The 2012-13 price forecast for corn was lowered from August's projection to $7.20-$8.60 per bushel. Despite a slightly lowered corn yield forecast from August, higher estimated carry-in stocks and a lowered export forecast are resulting in larger domestic supply estimates than were made earlier.

The soybean meal price was increased for 2012-13 to $485-$515 per ton. This is due to a lower soybean crush forecast for 2012/13 as soybean ending stocks are projected to reach a nine-year low.


Cash block cheese, the week of Sept. 17, hit the $2 level for the first time since November 2011 as the markets contemplated the August Milk Production report and awaited Friday afternoon's August Cold Storage data. The blocks closed Friday morning at $2 per pound, up 12 3/4-cents on the week and 27 1/4-cents above a year ago. The barrels saw a 13 1/4-cent jump to $1.96, 25 1/4-cents above a year ago. Twenty-two cars of block traded hands on the week and eight of barrel. The lagging AMS-surveyed U.S. average block price slipped 0.2 cent, to $1.8515, while the barrels averaged $1.8190, down 1.4 cents.

Milk for cheese manufacturing is tight in the East, according to USDA's Dairy Market News, while Central and Western plants are finding adequate levels. Additional milk supplies are available, but competition from alternative products has that milk at a premium. USDA reported that exports of cheese so far this year are up 20 percent from a year ago. Assistance has come from the CWT program and is aiding in sales volume.

CWT accepted 19 requests for export assistance this week to sell 3.32 million pounds of cheese and 357,149 pounds of butter to customers in Asia, Central America and the Middle East. The product will be delivered through February 2013 and raised CWT's 2012 cheese exports to 85.7 million pounds plus 57.4 million pounds of butter and 123,459 pounds of anhydrous milk fat.

Global view

Warm weather is slower to develop in Australia than in New Zealand, according to USDA, thus grass and pasture growth is slower, although early reports indicate that July milk production in Australia was running about 3.5 percent ahead of last season.

Production estimates for the upcoming season remain much the same as previously reported with Australia estimating a 2 to 3 percent increase over two years ago and New Zealand looking at a 4 to 5 percent increase over the 2010-11 season. Milk producers and handlers in both countries state that output will remain positive but not as strong as the 2011-12 season.

The U.S. Dairy export Council's new Global Dairy Market Outlook says "market sentiment has flipped from bearish to bullish in the last eight weeks" and cites the U.S. drought as the catalyst, compounded by adverse weather in Europe and lack of product from Oceania. Read complete details at www.usdec.org.

Tuesday's Global Dairy Trade auction results were mixed, according to the Daily Dairy Report. Cheddar cheese and skim milk powder moved higher, up 1 and 4.7 percent respectively, from the September 4 event.

Anhydrous milkfat moved lower, down 9.8 percent, to an equivalent U.S. butter price of $1.16 per pound (unadjusted for import costs).

With CME butter where it's been, a chasm exists between U.S. and GDT prices for equivalent butterfat product, the DDR concluded, and "Helps explain an increase in U.S. imports of New Zealand AMF in recent months and the slowdown in U.S butter exports."


CME cash butter reversed the previous week's slippage and climbed back to $1.89 per pound, up 4 cents on the week and 12 cents above a year ago when spot butter saw a 13 1/4-cent meltdown. Only one car was sold in the cash market this week and the AMS-butter average hit $1.8569, up 5.3 cents.

USDA reports that butter producers and handlers were surprised at the weakness the second week of September but expected it to be short lived. Many feel that the cash butter price will remain firm for the balance of the year, with some speculating that $2 butter might not be out of the picture before 2013.

Churning across the country is generally stronger as cream volumes are more available. Class II cream needs are declining, especially for ice cream and mix needs. Many butter producers are pulling back on cream sales and churning volumes for current and future butter needs.

Butter demand is seasonally steady. Retail orders are holding at good levels with food service orders settling into post summer patterns. Retail buyers are indicating that consumers appear to be more accepting of current price levels as butter sales have remained quite positive, according to USDA.

Cash Grade A and Extra Grade nonfat dry milk held all week at $1.69 and $1.6350 respectively. AMS powder averaged $1.3809, up 1.9 cents, and dry whey averaged 58.53 cents, up 1.1 cent.

Fluid milk

Strong Class I demand in the East has reduced manufacturing milk supplies, USDA reports. Along with reduced milk production levels this has increased demand for milk and components from other parts of the country.

Florida production is nearing seasonal lows and imports totaled 96 loads this past week. The Southeastern region also imported 47 loads to fill needs. Milk supplies in the Central region are adequate for most needs with some milk being moved out of the region at premium prices.

California milk supplies are tight compared to year ago levels with processors finding it difficult to satisfy all of their needs. Southwestern levels are being adversely affected by heat and monsoon conditions. Processors are balancing needs to meet the tighter supplies. Northwest milk supplies are adequate for most needs, but remain below full manufacturing capacity.


The October federal order Class I base milk price was announced this week at $18.88 per hundredweight, up $1.29 from September but 68 cents below October 2011, and equates to about $1.62 per gallon. That pulled the 2012 Class I average to $16.74, down from $19.26 at this time a year ago but compares to $15 in 2010 and a disastrous $11.09 in 2009.

The AMS-surveyed butter price averaged $1.8237, up 13.6 cents from September. Nonfat dry milk averaged $1.3708, up 11.9 cents. Cheese averaged $1.8542, up 10 cents, and dry whey averaged 58.04 cents, up 4.5 cents from September.

Back to the futures

The last half 2012 federal order Class III milk prices were averaging $16.53 on June 8, $17.49 on July 6, and $18.80 on Aug. 3. Looking at the announced Class IIIs plus the remaining four months of 2012, it averaged $18.69 on Sept. 7, $18.98 on Sept. 14, and was trading around $19.06 late morning Sept. 21.

In politics

Congress adjourned without passing a farm bill. National Milk Producers Federation's Chris Galen told me the lame duck session will likely take it up after the November elections.

An NMPF press release reports that a new analysis by the Congressional Research Service "points out the advantages of the margin insurance and market stabilization-based approach to reforming dairy policy."

The report was released "to help members of Congress and their staffs better understand the details of current dairy policy, and potential changes to those programs," NMPF said. "More importantly, the CRS report provides an impartial view of the specific programs contained in the Dairy Security Act of the pending Farm Bill." Complete details are posted at www.nmpf.org.


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