Posted: Friday, December 21, 2012 10:49 AM
By LEE MIELKE
For the Capital Press
Fluid milk sales have been waning for decades but in recent years consumption declines have accelerated, according to the Dec. 14 Daily Dairy Report. Analyst Sarina Sharp talked about it in the Dec. 14 Daily Dairy Discussion available on the DDR website. Fluid milk sales in the first 10 months of 2012 dropped 1.7 percent from the same period in 2011, she said, compounding a 2.2 percent decline in 2011 relative to 2010.
She cited a Wall Street Journal article examining challenges the dairy industry faces in winning consumers back from alternative beverages. She said children are the heaviest milk drinkers but represent an ever-shrinking proportion of the overall population and many adults have switched from milk to alternatives like soy or almond "milk." Sales volumes of nondairy alternative beverages have grown 15.5 percent over last year, according to the DDR, and plant-based "milk" sales reached $1.3 billion in 2011.
"America has not turned its back on dairy," Sharp cautioned. Cheese consumption has risen consistently and new products like Greek yogurt are rapidly gaining customers and sales. Per-capita cheese consumption has grown from 17.5 pounds annually in 1980 to 33.5 pounds last year. Per capita yogurt consumption has increased from 2.5 pounds in 1980 to 13.5 last year.
But Sharp also pointed out that as production and consumption of non-fluid milk products has increased the importance of Class I fluid milk, traditionally the highest regulated priced dairy product, has declined.
From January through October 2012, the Southeast and Upper Midwest milk marketing orders have posted the largest year-to-date declines in total fluid milk products of 2.5 and 2.4 percent, respectively. The farm-level impact of lower fluid milk sales in the Upper Midwest is rather small because less than 12 percent of the order's milk was processed into packaged fluid milk so far this year, and the Class I differential in the Upper Midwest is $1.75 per cwt.
In contrast, about 65 percent of the milk in the Southeast order is processed into packaged fluid milk, and the Class I differential is near $3 per hundredweight. As a result, regulated farm milk prices in the Southeast are likely to be about five cents lower in 2012, while regulated milk prices in the Midwest will be less than a penny lower, according to Sharp.
So much for falling milk production. November output in the top 23 states totaled 14.9 billion pounds, up 1.1 percent from November 2011, according to the Agriculture Department's preliminary data. Output in the 50 states, at 15.97 billion, was up 1 percent. Revisions added a million pounds to the original October estimate, now put at 15.2 billion, down slightly from a year ago.
November cow numbers, at 8.47 million, were up 8,000 from October but 3,000 less than a year ago. Output per cow averaged 1,758 pounds, up 19 from 2011.
Wisconsin was up 4.7 percent thanks to a 70 pound gain per cow and 6,000 more cows. California was down 2.3 percent despite 2,000 more cows but high feed costs dropped output per cow by 45 pounds. That was evident in Arizona as well where output per cow plunged 85 pounds, cow numbers dropped 12,000 head, resulting in the state's output being down 2 percent from a year ago.
Idaho was up 2.3 percent despite a 40 pound drop per cow but cow numbers remained the same. New York was up 3.2 percent thanks to a 55 gain per cow. Pennsylvania inched 0.4 percent higher on a 20 pound gain per cow but cow numbers were off 5,000 head. Minnesota was up 4.5 percent thanks to a 70 pound gain per cow. Cow numbers were unchanged.
Other players of interest; Michigan was up 4.4 percent, on a 50 pound gain per cow and 6,000 more cows. New Mexico saw a 4 percent decline on 10,000 fewer cows and 20 pounds less per cow. Texas was down 3.7 percent on a 45 pound loss per cow and 5,000 fewer cows. Washington State was down 0.6 percent on 2,000 fewer cows. Output per cow was unchanged from a year ago.
USDA estimated 268,800 culled dairy cows were slaughtered under federal inspection in November, down 16,600 from October, but 16,000 more than November 2011. Through January to November 2012, dairy cow slaughter totaled 2.842 million head, up 190,600 from the same period in 2011.
Dairy Profit Weekly says, based on weekly and monthly data, 2012 dairy cow slaughter is on pace to surpass 3 million, the highest total in 17 years. USDA began differentiating dairy cow slaughter from total cow slaughter in 1986. Since 1986, dairy cow slaughter has topped 3 million only twice, in 1986, at 3.595 million (a year influenced by the federal whole herd buy-out program) and 1996, at 3.037 million.
USDA's Livestock, Dairy, and Poultry Outlook says increasing cow slaughter in the fall is a seasonal pattern, but drought has led to beef cow slaughter above that expected with normal weather patterns. Unfavorable milk prices in the face of high feed costs have led to much higher dairy cow slaughter than in 2011.
Although total cow slaughter has been down overall from corresponding periods in 2011, weekly dairy cow slaughter has been significantly higher, according to USDA. Federally inspected beef cow slaughter has also increased seasonally, but remains below year-earlier levels for the corresponding weeks, at a rate that more than offsets the year-over-year increased dairy cow slaughter rate.
Milk is flowing into Class III plants across the country, according to USDA's Dairy Market News. Manufacturers are surprised at the increased volume. East and Midwest have plants expanding their schedules and Western manufacturers are seeing steady to slowly increasing volumes. Better than expected component levels are adding to cheese yields.
The Foreign Agricultural Service reported quota imports of cheese for January to November totaled 160.5 million pounds, up 6.6 percent from a year ago. Exports of cheese for January-October totaled 486.6 million pounds, up 20 percent from a year ago and exports account for 5.4 percent of U.S. production.
Cooperatives Working Together accepted 41 requests for export assistance this week to sell 7.547 million pounds of cheese and 1.318 million pounds of butter to customers in Asia, the Middle East and North Africa. The product will be delivered through June and raised CWT's 2012 cheese exports to 123.2 million pounds, 72.4 million of butter, 127,868 pounds of anhydrous milk fat and 171,961 pounds of whole milk powder to 36 countries on four continents.
Manufacturing milk supplies are increasing in the Northeast and Mid-Atlantic, according to DMN. Class II demand has slowed. Out of state shipments of Florida milk have increased recently as production builds. Milk production in the Midwest is increasing on a seasonal basis. Manufacturers are cautious to take on additional loads unless discounts under Class are offered. Milk volume in the West is slowly increasing but is below year ago levels in many cases. Dairies in California are having a difficult time maintaining profitability, says DMN.
The U.S. Dairy Export Council says President Barack Obama's Dec. 14 signing of legislation granting permanent normal trade relations to Russia represents a major step toward reopening business with one of the world's largest dairy buyers. U.S. dairy suppliers have been shut out of the Russian market since September 2010.
The president's action followed successful bipartisan votes by the House and Senate in the lame-duck session of Congress that began Nov. 13. National Milk and USDEC actively supported PNTR for Russia and applauded the government's actions to put the bill into law.
"Twas the week before Christmas and all through the market, cheese did move higher but did not rocket." The block price closed that Friday at $1.74 per pound, up a penny and a half on the week and 17 3/4-cents above a year ago. The barrels closed at $1.6550, up 3 cents on the week, 9 1/2-cents above a year ago, but 8 1/2-cents below the blocks. A lot of cheese was brought to Chicago this week; six cars of block and 32 of barrel. The AMS-surveyed block price fell to $1.8141, down a nickel. The barrels averaged $1.7546, down 4.6 cents.
Butter erased the previous week's half-cent advance, closing Friday at $1.5375, down 5 3/4-cents on the week and 5 3/4-cents below a year ago. Nine cars found new homes on the week. AMS butter averaged $1.5944, down 4.1 cents. AMS powder averaged $1.5456, up 0.3 cent, and dry whey averaged 65.41 cents, down 0.9 cent.
Butter production is active throughout the country, according to DMN, as cream use for ice cream, sour cream, dips and other holiday related items declines.
The federal order Class I base milk price kicks off 2013 on a down note. The Agriculture Department announced the January mover at $18.97 per hundredweight, down $2.42 from December but 17 cents above January 2012 and equates to about $1.63 per gallon.
The AMS butter price averaged $1.6126 a pound, down 27.3 cents from December. Nonfat dry milk averaged $1.5442, up 3.3 cents. Cheese averaged $1.8250, down 24.7 cents, and dry whey averaged 65.88 cents, up 1.4 cents.
Back to the futures
First half 2013 Class III contracts portended an $18.26 per hundredweight average on December 7, down from $18.74 the week before, $18.47 on December 14, and was trading around $18. 39 late morning December 21. First half 2012 averaged $15.90, just in case you were wondering.
The 2012-13 forecast corn supply and use was unchanged from the November outlook. Based on the most recent World Agricultural Supply and Demand Estimates, the corn season-average price was forecast at $6.80-$8 a bushel, a price reduction based on lower year-to-date reported prices. The relatively early corn harvest this year increased marketings and pressured prices downward. Similarly, soybean output was unchanged in this month's WASDE.
Crush was raised and soybean meal domestic disappearance was lowered slightly, in line with expected livestock product production forecasts. Consequently, soybean meal prices were lowered this month to $440-$470 per ton. Corn and soybean meal prices will still be higher in 2013 than in 2012, the Outlooks said, despite the small downward price revisions.
According to the November Agricultural Prices report, the preliminary November alfalfa price this year remains above the 2011 price. Although feed prices will likely be lower later in 2013 than those in 2012, dairy producers will face relatively high feed prices in 2013 compared with other recent years.
The projected 2012 U.S. dairy herd size was unchanged from last month at 9.2 million head. Cow numbers were raised, boosting the 2013 average herd size in the December forecast to 9.13 million cows. Current-year yield per cow was unchanged at 21,640 pounds. Milk per cow was forecast at 21,880 pounds next year, also unchanged from November.
Finally; members of Family Dairies USA, Manitowoc Milk Producers Cooperative and Milwaukee Cooperative Milk Producers successfully voted to merge the three cooperatives, creating the largest dairy marketing cooperative in the Midwest. The new, combined cooperative, known as FarmFirst Dairy Cooperative, will begin business function as a unified entity on Jan. 1, 2013.