By LEE MIELKE

For the Capital Press

The Agriculture Department raised its 2012 milk production forecast in this week's World Agricultural Supply and Demand Estimates report after lowering it slightly a month ago. Look for output to hit 199 billion pounds, up 500 million pounds from last month's projection.

Milk cow numbers were raised for much of the year as USDA's Cattle report indicated 1 percent more dairy cows on January 1, 2012. However, producers are holding 1 percent fewer heifers for addition to the dairy herd, which is expected to push cow numbers lower later in the year.

Milk per cow forecasts were raised as data for the last quarter of 2011 was higher than expected. Mild weather in much of the country is supporting increased early year yields. 2011 output was put at 196.2 billion, up 200 million pounds from last month's projection and compares to 2010's 192.8 billion.

With higher forecast 2012 production, cheese and butter prices were lowered. The nonfat dry milk price was lowered to reflect slightly weaker early year prices. With stronger forecast demand for whey, the whey price forecast was raised. The lower cheese price is expected to more than offset the higher whey price, resulting in a reduced forecast Class III price.

Weakening prices

The WASDE report was the topic of Dairy Profit Weekly editor Dave Natzke in his Friday DairyLine update. He reported on the weakening cheese, butter and milk powder prices and the rising futures prices for corn and soybeans. As an example, Feb. 8 annual average 2012 Class III milk futures contracts traded 85 cents per hundredweight below the average on Jan. 5, with prices for February through March down nearly $2 per hundredweight compared to a month ago.

He reported that the WASDE indicates the trend could continue and cited the rising milk production data and lowered milk price projections detailed above.

"If lower milk prices aren't enough incentive for dairy farmers to reduce milk production, higher feed costs might be," Natzke said.

USDA forecasts the season-average corn price to be 60 cents to $1.40 per bushel higher than the year before, and soybean prices up to $1 per bushel higher.

Higher beef prices might be an incentive to more culling, Natzke said. Latest USDA projections raised beef prices by $6 to $14 per hundredweight compared to last year.

Dairy prices

Dairy prices saw more weakness the first full week of February. The cash block cheese price closed Feb. 10 at $1.4750 per pound, down a penny on the week and 44 cents below a year ago when they jumped 10 1/2 cents. The barrels saw some gains but still lost a penny on the week, closing at $1.4850, 41 1/2-cents below a year ago when they gained 12 1/2 cents, but they're a penny above the blocks despite a fair amount of product being sold. Nine cars of block traded hands and 29 of barrel. The NASS-surveyed U.S. average block price fell to $1.5587, down 2 1/2-cents. The barrels averaged $1.5409, down 3.7 cents.

Cash butter saw its fourth consecutive week of loss, losing another 6 cents and closing at $1.4325, 65 3/4-cents below a year ago. Four cars traded hands on the week. NASS butter averaged $1.5470, down 4.3 cents.

Cash butter saw its fourth consecutive week of loss, losing another 6 cents and closing at $1.4325, 65 3/4-cents below a year ago. Four cars traded hands on the week. NASS butter averaged $1.5470, down 4.3 cents.

Cash Grade A nonfat dry milk closed Friday at $1.3350, down 2 1/4-cents on the week, while Extra Grade held all week at $1.2975. NASS powder averaged $1.3853, down 0.8 cent, and dry whey averaged 66.48 cents, down a penny.

Commercial disappearance and the production of dairy products finished 2011 strong and rounded out a big year of output and usage, according to USDA data reported by Jerry Dryer in his Feb. 3 Dairy and Food Market Analyst.

Cheese production was up 1.7 percent (173 million pounds) to a record high 10.609 billion pounds and commercial disappearance grew by 3 percent (317 million pounds). American cheese disappearance grew 1.2 percent (49 million pounds) and other cheese by 4.2 percent (268 million pounds). Dry whey output fell about 1 percent (10 million pounds to 950.6 million pounds) and commercial disappearance was down 0.9 percent (8 million pounds to 952 million pounds).

Butter production increased 15.4 percent (241 million pounds) and commercial disappearance was up 10 percent (163 million pounds). Milk powder (nonfat dry milk and skim milk powder) output neared the 2 billion pound threshold at 1.964 billion; up 8 percent (147 million pounds). Commercial disappearance was up even more, wrote Dryer, plus 8.8 percent (159 million pounds).

He also touched on the growing milk supply and, based on plant operators he has talked to, warned that "the traditional spring peak in daily milk production is one to four months early across most of the U.S." There may be more to come "as warmer weather and longer days push their way north to the milksheds across the upper tier of states."

"Will there be enough plant capacity for all of the milk by March, April and May?" he asked. Several people he spoke with are concerned, he reported.

Zeroing in on nonfat dry milk, or NFDM, the CME's Daily Dairy Report says U.S. NFDM prices have dropped steadily the last seven months, falling 25 to 30 cents from the July 2011 peak. Buyers are often waiting for prices to stabilize before ordering too far out, according to the DDR, and inventories are building.

Meanwhile, Oceania skim milk powder prices have held mostly steady since October. "Traders and handlers indicate that powder stocks are sufficient to fulfill commitments with minimal volumes remaining as uncommitted," DMN said.

Mild winter weather across much of the country is helping to increase milk production and thus more milk is finding its way to cheese vats, according to Dairy Market News. Inventories are building as sales are reported as slow after the New Year. In most regions, the winter season has been much less stressful on the herd and increasing milk receipts at processing plants are being reported. Except for Florida, milk volumes coast to coast are building to the point that milk is not moving from one region to another to supplement shortages.

Milk volumes are increasing, but processing capacity is generally sufficient within close proximity of production at this time, according to USDA. Cream markets are weak and pricing multiples are easing. Cream volumes are heavy and often clearing from one region to another to find processing. Producers of higher-class cream product items are seeing declines in orders after a recent boost from football related interest, thus more cream is available to churn coast to coast.

Fluctuating weather in Australia is not having an overall negative impact on milk output. Producers and handlers indicate volumes are lower but maintaining levels that are often higher than projected. Producers project a 2 to 3 percent annual increase when the current fiscal year ends in June.

Insurance

The Livestock Gross Margin insurance program has been a "very workable way for dairy producers to set some minimum floors on their revenue," according to the University of Wisconsin's Brian Gould in Tuesday's DairyLine. But it is severely limited by a budget of just $20 million a year for all of the pilot livestock revenue programs, including the LGM.

Gould said the Congressional Budget Office 10 year forecast of direct payments to agriculture is about $60 billion, with $22 billion going to corn producers and $11 billion to wheat. All of $443 million would go to dairy -- less than 0.3 percent.

He predicted continued volatility in dairy but said the LGM program works. However, it may need to be removed from "pilot status" so more funds could become available. The LGM ran out of money after two months, Gould reported, but he speculated that about 2.5 percent of U.S. annual milk production was insured and was equivalent to what's sold on the Class III futures. The relative small amount of milk represented is only because of the lack of money, according to Gould.

Gould encouraged listeners to be involved in the hearing process as the Farm Bill process moves ahead and to contact lawmakers. He said there are groups of dairy farmers that are examining changes that could be made to the LGM to make it more workable and get it out of pilot status and now is the time to do it.

Looking 'back to the futures'

The Class III milk price average for the first six months of 2012 stood at $17.60 on Jan. 6, $17.28 on Jan. 13, $16.81 on Jan. 20, $16.85 on Jan. 27, $16.35 on Feb. 3, and was hovering around $16.15 late morning Feb. 10.

Look for the 2012 Class III average to range $16.70-$17.40 per hundredweight, down from the $17.10-$17.90 expected a month ago, and compares to $18.37 in 2011 and $14.41 in 2010.

Lower butter and NDM prices result in a lower Class IV price, now projected to average $16.25-$17.05, down from $16.45-$17.35 expected in the last report, and compares to $19.04 in 2011 and $15.09 in 2010.

Cooperatives Working Together

Cooperatives Working Together accepted 35 requests for export assistance this week to sell a total of 3.763 million pounds of cheddar cheese and 3.411 million pounds of butter to customers in Asia, Europe, the Middle East and North Africa. The product will be delivered through June 2012. The sales raised CWT's 2012 cheese exports to 17 million pounds plus 14.4 million pounds of butter to 14 countries.