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Home  »  Ag Sectors

Mielke: Milk production, chocolate milk consumption climb

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By LEE MIELKE


For the Capital Press


Milk production is increasing, to varying degrees, across most regions of the nation, according to USDA's weekly update. Eastern milk production is increasing with import loads needed in the Southeast and Florida to meet Class I demand. Manufacturing milk supplies in the Eastern region remain tight. Midwest milk haulers and handlers report that volumes of farm milk pickups are varied.


California milk output is steady with processing plants running on lighter than projected schedules as supplies lag behind year ago levels. The Pacific Northwest, Utah and Idaho show milk production benefiting from the cool fall weather and increasing along the seasonal trend.


Speaking of fluid milk, while we continue to see slipping fluid sales, there is some good news on the fluid side. Dairy Profit Weekly reports that summer chocolate milk sales rose significantly, coinciding with efforts to promote it as an after-workout sports recovery drink during the 2012 Summer Olympics. The Milk Processor Education Program initiative, REFUEL "got chocolate milk?" highlighted some of the world's best athletes with the tagline "My After."


Sales volume in grocery, drug, club, dollar and military outlets grew 8.3 percent for the 13 weeks ending Sept. 9, when compared to the same period in 2011, according to RI/Symphony, a market research firm. July USDA statistics showed an 8.6 percent sales volume increase across all channels selling flavored milk.


Dairy politics


National Milk Producers Federation CEO Jerry Kozak said in Friday's DairyLine that he still believes Congress will pass a new farm bill before the end of the year. He criticized an alternative by Rep. Bob Goodlatte, R-Va., and David Scott, D-Ga., which would remove the dairy title's supply management provision.


"But worse," Kozak said. "They put in an amendment that would have capped production at 80 percent, so if you don't like supply management why would you even support the Goodlatte-Scott amendment because it says you have to cap your production for five years and no growth is covered. That's the opposite of what we have in the Dairy Security Act."


NMPF also testified at a hearing last month regarding the addition of Canada to the Trans-Pacific Partnership negotiations. At the hearing, held by the Office of the U.S. Trade Representative, NMPF said that the exclusion of dairy from the U.S.-Canada portion of the North American Free Trade Agreement was a major missed opportunity and needs be rectified now through the TPP process. In addition to opening access to the Canadian market by elimination of its dairy tariffs, NMPF also stressed the importance of ensuring that nontariff barriers do not thwart U.S. access, as had been seen in the past.


Shifting forecasts


The Agriculture Department lowered its 2012 milk production forecast again in its latest World Agricultural Supply and Demand Estimates report "as slower growth in milk per cow more than offset a slower expected decline in cow numbers."


Department estimates are now for 199.6 billion pounds, down 300 million pounds from last month's forecast and compares to 196.2 billion in 2011 and 192.8 billion in 2010. But, the 2013 estimate, at 199.7 billion, was raised 800 million pounds.


Higher forecast milk prices in late 2012 and into 2013 are expected to slow the rate of decline in cow numbers and help support higher growth in milk per cow in 2013, according to the report, thus the 2013 production forecast was raised.


Imports for 2012 and 2013 were forecast higher. Fat basis exports for 2012 were lowered but skim solids exports were forecast higher. Exports for 2013 were unchanged from last month.


Product prices were forecast higher for 2012 and 2013 as recent strength in dairy product demand is expected to carry into 2013. Forecasts for butter, cheese, nonfat dry milk, and whey were raised from last month.


The higher product prices portend higher Class III and Class IV milk price forecasts. Look for your 2012 Class III price to average $17.55-$17.65 per cwt., up from the $16.75-$16.95 predicted a month ago and compares to $18.37 in 2011 and $14.41 in 2010. The 2013 Class III average was predicted to range $17.75-$18.65, up from $16.70-$17.70 predicted last month.


The 2012 Class IV was projected at $16-$16.20, up from the $15.45-$15.75 expected last month and compares to $19.04 in 2011 and $15.09 in 2010. The 2013 projection was put at $16.75-$17.75, up from $15.85-$16.95 last month.


Dairy Profit Weekly editor Dave Natzke detailed one other report this week in Friday's DairyLine. USDA's October Crop Production report reduced its corn harvest forecast to about 10.7 billion bushels, down 13 percent from 2011, and the lowest production since 2006. Due to the drought, average corn yields will be the lowest since 1995, according to Natzke.


The news is better for soybeans, where USDA raised its production forecast 9 percent from a month ago, to 2.9 billion bushels, and this year's crop could be the third-largest on record, he said, "welcome news for dairy farmers needing protein-rich soybeans for their cows."


Estimated production of alfalfa hay was raised but will still be the smallest harvest since 1988. The estimated cottonseed harvest was raised slightly.


"For the most part, the news for dairy farmers is better," Natzke explained. "Although not much."


Combined with global crop conditions, USDA forecasts dairy farmers will see a 1 percent reduction in corn prices and a 3 percent decline in soybean meal prices.


Cheese numbers


Cash block cheese traded at the Chicago Mercantile Exchange took a breather following five weeks of gain, closing October 12 at $2.10 per pound, unchanged on the week and 41 cents above a year ago when they tumbled 7 1/2 cents to $1.69. The barrels closed the second Friday of October at $2.06, also unchanged on the week and 37 cents above a year ago. Three cars of block were sold on the week and none of barrel. The U.S. average, AMS-surveyed, block price jumped 6.8 cents, to $1.9586, while the barrels averaged $1.9963, up 9 cents.


Cheese production is above year ago levels, but is slowing, according to USDA's Dairy Market News. Tight milk supplies in the West have slowed cheese making in the region. Cheese makers would like to expand production, but sourcing the milk is becoming more of an issue, while the Central region has remained active in cheese production, taking advantage of rebounding milk volumes after the hot summer.


Retail cheese demand is good with food service accounts adding to their orders. Specialty cheese sales for holiday promotions are also good. Export demand has slowed as prices are higher than most international markets.


Less than one-third of U.S. cheese establishes federal order Class III and California's 4b milk price, according to the Daily Dairy Report's Sara Dorland in the Oct. 5 Daily Dairy Discussion, which is a free download at the DDR website.


The Oct. 5 DDR pointed out that cheddar production as a percentage of American cheese production has been declining since 2004. Manufacturers are increasingly replacing cheddar with higher-moisture, lower-cost Monterey Jack. Dorland also discusses if milk pricing formulas should be re-examined.


Butter business


Cash butter reversed gears following last week's surprising 9-cent plunge and closed Friday at $1.93, up 7 cents on the week and 9 1/2-cents above a year ago. Thirteen cars sold on the week. AMS butter averaged $1.9070, up 2.9 cents.


Churning schedules across the country are mixed, depending on cream availability, according to USDA. Butter producers are preparing for upcoming holiday needs and, in some regions, indicate that cream supplies for their needs are tightening as some Class II operations increase production of cream based holiday type items. Butter orders are strong for both retail and food service.


Butter export assistance continues to be extended through the CWT program, which accepted five requests for export assistance this week to sell 1.1 million pounds of cheese and 4,409 pounds of anhydrous milk fat to customers in Asia and Central America. The product will be delivered through April 2013 and raised CWT's 2012 cheese exports to 96.9 million pounds, 58.3 million of butter, and 127,868 pounds of anhydrous milkfat to 34 countries.


September was CWT's busiest month ever when measured by the volume of products for which it awarded bonuses. While the 78 bids received weren't as high as previous months, the volume of cheese exported reached a record 16.784 million pounds. A total of 11 butter bids added 1.631 million pounds to the total product exports assisted in September, which all together was the equivalent of 190.5 million pounds of milk moved offshore, according to CWT.


Cash Grade A nonfat dry milk lost 6 cents on the week, slipping to $1.60, while the Extra Grade held at $1.6350. AMS powder averaged $1.4409, up 0.1 cent, and dry whey averaged 61.1 cents, up 0.4 cent.


Prices


California's November Class I milk price was announced this week at $23.17 per hundredweight for the North and $23.44 for the South. Both are up $2.62 from October, are $2.91and $2.90 respectively above a year ago, and equate to $1.99 and $2.02 per gallon respectively.


The 2012 Northern price average now stands at $18.69, down from $20.68 at this time a year ago and the Southern average now stands at $18.96, down from $20.95 a year ago. The federal order Class I base is announced Oct. 17.


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 August 3. Looking at the announced Class IIIs plus the remaining months of 2012, it averaged $18.69 on Sept. 7, $18.98 on Sept. 14, $19.13 on Sept. 21, $19.15 on Sept. 28, $19.27 on Oct. 5, and was trading around $19.38 late morning Oct. 12.


Ron O'Brien, risk management consultant at INTL FCStone, wrote in his Oct. 12 eDairy Insider Opening Bell that the Class III market is running into resistance, but he said dairy bankruptcies and cow slaughter support milk prices.


FC Stone dairy economist Bill Brooks said, "Weekly cow slaughter in the region that includes California has been running at double-digit percentage gains for seven weeks, but seeing lower numbers of cows in production is taking time." USDA will update those numbers in its Oct. 19 September Milk Production report.




New publication


Dairy producers will soon be receiving a new, digital-only weekly magazine with interactive content. DairyBusiness Weekly will debut on Nov. 14, containing news, features and advertising presented in a format designed for computer screens and mobile devices, according to DairyBusiness Communications.



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