Home Ag Sectors

Mielke: Milk prices have bottomed out for year

Published on April 6, 2013 3:01AM

Last changed on May 4, 2013 8:30AM

Lee Mielke

Lee Mielke


For the Capital Press

Farm milk prices slipped for the fifth month in a row but have likely bottomed out for 2013.

The USDA announced the March Federal order Class III price at $16.93 per hundredweight (cwt.), down 32 cents from February but $1.21 above March 2012, $1.91 above California's 4b cheese milk price even with the state's temporary price increase, and equates to $1.46 per gallon. The March Class IV price is $17.75, unchanged from February and $2.40 above a year ago.

The April Class III futures contract was trading late Friday morning at $17.56. May was at $18.35; June, $19.33; and July was $19.35. The 2013 Class III average now stands at $17.44, up from $16.28 a year ago, and compares to $16.63 in 2011 and $13.85 in 2010. The Class IV average is now at $17.71, up from $15.94 a year ago, and compares to $18.08 in 2011 and $13.22 in 2010.

The March AMS-surveyed cheese price averaged $1.6467 per pound, down 1.6 cents from February. Butter averaged $1.6146, up 7.1 cents. Nonfat dry milk averaged $1.5208, down 3.5 cents, and dry whey averaged 60.48 cents, down 3.2 cents from February.

California's 4b cheese milk price was announced by the California Department of Food and Agriculture at $15.02 per cwt., down 39 cents from February but $1.35 above a year ago. The 4b average for 2013 now stands at $15.42, up from $13.77 a year ago and $15.39 in 2011.

The 4a butter-powder price is $17.87, down 14 cents from February but $2.54 above a year ago. Its 2013 average is now at $17.65, up from $15.67 a year ago and $17.81 in 2011. The prices for the months February to May include the temporary price increases resulting from the Dec. 21, 2012, public hearing.

Cash block cheese closed the first Friday of April at $1.7625 per pound, up 7 cents on the week and 27 1/2-cents above a year ago. Barrels finished at $1.6925, up 9 1/2-cents, 23 1/4-cents above a year ago, but 7 cents below the blocks. Five cars of block traded hands on the week and seven of barrel. The AMS-surveyed U.S. average block price inched up 1.1 cent, to $1.6217, while the barrels averaged $1.6499, up 3.2 cents.

USDA's Dairy Market News reports that cheese production across the country continues at an accelerated pace compared to last year. Midwest cheese manufacturers are noting abundant milk supplies are available and the East and West are above year ago levels as well.

FC Stone market analyst Ryan Cox wrote in his April 5 eDairy Insider Opening Bell that "milk production is strong and we can expect product inventories to build as we go through the flush."

Sales have been sufficient to keep inventories from building excessively, says USDA, and export demand has been good, assisted by the CWT program. "Good export sales are important in keeping inventories at manageable levels," says DMN, but "buyers are hesitant to purchase above immediate needs."

Export assistance OK'd

The CWT accepted 28 requests for export assistance this week to sell 5.9 million pounds of cheese and 1.6 million pounds of butter to customers in Asia, Europe, the Middle East, North Africa and Oceania.

Speaking of the world market; milk powder prices moved sharply higher in the April 2 Global Dairy Trade auction and the trade-weighted average for all products increased 14.2 percent. The April 3 Daily Dairy Report says that the sharp increase follows previous biweekly gains of 14.8 and 10.4 percent.

Second half 2012 GDT prices moved modestly higher, but the recent gains are in response to lower-than-anticipated milk production in drought-stricken New Zealand. The DDR points out that New Zealand, the world's largest exporter of whole milk powder, exported 98 percent of its 2012 powder production, "Therefore, it comes as no surprise that WMP prices have posted significant price gains during recent auctions. WMP prices rose 7 percent on April 2, to an average $2.31 per pound, the highest price recorded since July 2008."

Tightness in the WMP market has spilled into other markets, according to the DDR. Skim milk powder posted the largest price gain from the last auction largely due to limited offerings by Fonterra in the June through October contract periods. The DDR adds that the U.S. is the only top-five dairy exporting country to post higher milk production in 2013. More important, the percent increase in U.S. milk production during Fourth Quarter 2012 contributed to strong dairy product production and stock building. "With ample stocks and lower domestic prices versus global markets, the United States is well positioned to capture market share over the next several months," the DDR concludes.

Butter closed April 5 at $1.71, up 8 cents on the week and 28 cents above a year ago. Three cars sold. The AMS butter price averaged $1.6586, up 2.9 cents.

Cash Grade A nonfat dry milk closed April 5 at $1.6825, up a whopping 12 1/4-cents on the week. Three cars were sold. Extra Grade closed at $1.59, up 3 cents, on bids. AMS powder averaged $1.5066, down 0.3 cent, and dry whey averaged 58.16 cents, down a penny.

February dairy product production was down a little from a year ago on some products, according to USDA's latest Dairy Products report but February had one less day of production this year so the comparisons are skewed due to last year being a leap year.

Butter output, at 171 million pounds, was down 8.9 percent from January but 1.1 percent above a year ago. Nonfat dry milk production, at 138 million pounds, was down 3.7 percent from January and 20 percent below a year ago.

FC Stone dairy economist Bill Brooks says "the Dairy Products report showed reduced nonfat production and higher skim milk powder output. I think that will continue given the international market conditions. With more milk going into SMP and moving offshore, it will help firm up nonfat prices."

American type cheese, at 347 million pounds, was down 7.8 percent from January but 1.3 percent above a year ago. Italian type cheese output, at 361 million pounds, was down 9.7 percent from January and 2.6 percent below a year ago. Total cheese output hit 857 million pounds, down 8.4 percent from January and slightly below that of a year ago.

Dairy product commercial disappearance from November 2012 through January 2013 totaled 49.2 billion pounds, up 0.6 percent from a year ago. Butter was down 14.8 percent; American cheese, up 1.7 percent; other cheese, up 1.2 percent; NDM, down 33.6 percent; and fluid milk products were off 2.1 percent.

Fluid milk consumption remains a challenge. Interestingly, Jerry Dryer's March 29 Dairy and Food Market Analyst reports that refrigerated "alternative" beverage sales were up 15.2 percent in January 2013 versus January 2012. Alternatives to milk include soy, almond, coconut, and rice-based beverages, horchata, goats' milk and other substitutes for cow's milk. The total alternative volume for the month was 12.9 million gallons, compared to 299 million gallons of milk.

New Zealand milk output continues to suffer from severe drought. Some analysts predict milk output in the final months of the season could be 15-20 percent lower than last year with seasonal totals falling 1-2 percent. Australia production is also trending lower due to drought.

MILC payments affected?

Back home, there's still no definitive word from USDA regarding sequestration's affect on Milk Income Loss Contract (MILC) payments.

However, with USDA's latest Ag Prices report establishing the feed cost adjuster, the February MILC payment would be 52.22 cents per cwt., according to the March 29 DairyBusiness Update.

University of Wisconsin-Madison dairy economist Brian Gould said preliminary March milk and feed price estimates indicate the March MILC payment will be about 76.96 cents. His updated MILC projections, based on milk and feed futures prices at the close of trading on March 27, show April at 67.98 cents; May, 37.16 cents; June, 16.85 cents; and nothing projected for July to September.

The March 29 Daily Dairy Report says restaurant sales are projected to strengthen this year but at a lower-than-average pace, according to the National Restaurant Association. Restaurant sales are increasingly important to dairy consumption because they now account for 47 percent of total food dollars, according to the DDR, which adds that restaurants are working to increase healthy, local and sustainable menu items and "the good news for dairy is it made that list."

It cites the focus on expanding children's nutrition with low fat and nonfat milk as a menu option and artisanal ice creams are expected to make further headway with consumers. Other positive news for dairy is that entrees using cheese continue to lead the top-10 list of favorites with Italian foods and cheeseburgers holding the first and second positions. To subscribe to the Daily Dairy Report, log on to www.dailydairyreport.com.

NASS offers monthly reports

USDA announced this week that, starting April 19, the National Agricultural Statistics Service will provide a monthly estimate of U.S. milk production through September 2013, which is the end of the federal fiscal year. Last month USDA said it would suspend the report due to forced budget cuts from sequestration.

DairyBusiness Update's Dave Natzke reported that the agency will resume a slimmed-down version, which will only contain milk production estimates "determined from other information USDA collects." It will not use regular surveys of dairy farmers, and therefore, won't be providing estimates of the numbers of dairy cow on farms, and production per cow data.

Members of the House and Senate return from their Easter break next week, with debate on immigration reform and a new federal farm bill likely on their calendar. U.S. Sen. Kirsten Gillibrand, who introduced a proposal called the Dairy Income Fairness Act in mid-March, will join with Sen. Susan Collins of Maine to introduce another piece of dairy policy in April. This bill, called the Dairy Pricing Reform Act, would require USDA to hold hearings on restructuring current pricing formulas used in federal milk marketing orders.

In addition, two bills, one in the House and one in the Senate, address the possibility of California joining the federal order system, Natzke concluded.

Meanwhile, National Milk says milk prices for Midwest dairy farmers would have been more than $1.00 per hundredweight higher last year if the proposed federal Dairy Security Act program had been available to them, a national dairy industry official told cooperative farm leaders gathered in Rochester, Minn., for the Minnesota-Wisconsin Dairy Policy Conference.

National Milk's Jim Mulhern said a farmer with 200 cows, who purchased margin coverage at a level of $6.50 per hundredweight, would have received more than $44,000 in additional payments in 2012 under the Dairy Security Act that is now pending before Congress.

The Dairy Security Act was approved by both the House and Senate Agriculture Committees during consideration of last year's farm bill. The full Senate also approved the bill, but the House failed to vote on the farm bill last year, so Congress is now beginning efforts to pass a farm bill this year.


Share and Discuss


User Comments