August milk production in the top 23 states totaled 14.6 billion pounds, down 0.2 percent from August 2008, according to preliminary data in USDA's latest Milk Production report. Extrapolated, the 50 state total was off 0.3 percent. Revisions lowered July output below a year ago as well as making it the first decrease in U.S. milk output since April 2004.
August cow numbers totaled 8.4 million head, down 28,000 from July, and 143,000 less than a year ago. Output per cow averaged 1,743 pounds, up 25 from a year ago.
Checking the top five
California was down 4.5 percent, due to a drop of 64,000 cows and 20 pounds less per cow. Wisconsin offset some of that decline, up 3.7 percent, thanks to 5,000 more cows and a 55-pound gain per cow. New York was up 0.2 percent, despite a drop of 8,000 cows. Output per cow was up 25 pounds however. Idaho was down 2.7 percent, on a 7,000-cow loss and 30 pounds less per cow. Pennsylvania was up 0.7 percent on a 20-pound gain per cow although cow numbers were down 3,000 head. Minnesota was up 4.4 percent, on 4,000 more cows and a 55-pound gain per cow.
The biggest increase was in Illinois, up 5.4 percent on a 75-pound gain per cow. Cow numbers were unchanged. Indiana was next, up 4.9 percent on a 65-pound gain per cow and 1,000 more cows. Texas followed with a 3.5 percent increase despite a 5,000 head drop in the herd. Output per cow was up 75 pounds.
The biggest decline occurred in Arizona, down 7.4 percent on a 14,000-cow decline. Output per cow was up 5 pounds. Vermont was next, down 4.7 percent, on 5,000 few cows and a 15-pound loss per cow. California was next.
Friday's reported drop in milk output was a lift to the cash cheese market. The block price jumped 8 1/4-cents, closing the week at $1.4125, but that's still 52 3/4-cents below that week a year ago. Barrel closed Friday at $1.3775, up 8 3/4- cents on the week, but 57 1/2-cents below a year ago. Six cars of block traded hands on the week and two of barrel. The NASS-surveyed U.S. average block price lost 3.6 cents, averaging $1.3359. Barrel averaged $1.2942, down 4.5 cents.
Cash butter closed at $1.2600, down a penny on the week, and 48 3/4-cents below a year ago. 16 cars were sold. NASS butter averaged $1.1774, up 0.7 cent.
Cash Grade A nonfat dry milk finished the week at $1.0650 per pound, up 2 1/2-cents on the week, and Extra Grade closed at $1,0100 up a penny. NASS powder averaged 98.50 cents, up 1.3 cents, and dry whey averaged 30.17 cents, up 0.6 cent.
Alan Levitt, editor of the CME's Daily Dairy Report, said the dairy markets have turned stronger the last two weeks and what's significant is that the price gains were broad-based. It's not just one product, he explained, prices for cheese, butter, milk powder, and whey were up last week and buyers are starting to get a little more aggressive.
Declining milk production is on their minds, he said, evidenced in Friday's report, plus revisions to July data turned an increase into a small decline and, while there weren't big reductions, "it's a start."
Cow numbers also continue to decline, according to Levitt, as has been the case for most of the year. But, he added that milk production has remained pretty strong in the Midwest although output in the West and Southwest is weak where a lot of the butter and powder manufacturing is located.
Other encouraging signs include the fact that manufacturers have stopped selling product to the government and international prices are up 20 to 30 percent across the board over the last three months, Levitt said.
"We're starting to get some positive signs," but he warned that he didn't want to get carried away. "We will bump into some price resistance as they climb and we still have a long way to go."
We don't know what's going to happen to support prices or any of the other possible government measures over the next six weeks, he said, but "it's been the most encouraging week we've seen in the dairy market in quite a long time."
When questioned about demand, Levitt said it's almost like the flip side of supply.
"When buyers sense the supply is going to be tighter, they tend to buy more," he said. "Nobody wants to get caught short as we come up to fourth-quarter holiday buying. People start ordering a little more and that's all contributing to it."
Checking the cupboard
August butter stocks totaled 264 million pounds, unchanged from July but 49.5 million or 23 percent above August 2008, according to preliminary data in the Agriculture Department's latest Cold Storage report. July butter stocks were revised down 1.2 million pounds.
The American cheese inventory, at 621.5 million pounds, was down 6.9 million or 1 percent from July but 53.8 million pounds or 9 percent above a year ago. July stocks were revised up 2.2 million pounds.
Total cheese stocks amounted to 985.3 million pounds, unchanged from July, but 105 million or 12 percent above those a year ago. July stocks were revised up 5.5 million pounds.
Alan Levitt wrote that end-of-August inventories were larger than expected, American cheese stocks saw the smallest decline since 1992, and commercial butter stocks increased in August for the first time since 1990.
Most in the dairy industry agree on one thing, that U.S. milk pricing is in need of repair, and National Milk's Strategic Planning Task Force has developed a four-featured approach to do that, according to Chris Galen.
The low milk prices forced people to think long term and develop some kind of consensus, Galen said. The first two legs of the plan are to revamp the current producer safety nets, the MILC program and the price support program. The idea would be to revise them and create a dairy producer income insurance program similar to the crop insurance program that exists for row crop farmers.
A third leg would be to improve the Cooperative Working Together program by getting more participation so it can have more impact. The fourth leg is to reform the federal milk market order program, which many see as flawed.
Fleshing out the details as to how to do this is next, Galen said.
"Whenever you talk about making changes in dairy policy, the devil is in the details," he said.
The economic recession and the pain of low milk prices can be a catalyst for making important changes, he said.
There are a number of proposals being floated, including legislation on Capitol Hill, but I asked Galen if the dairy industry could unite around a plan. He said that is the challenge to build consensus, but "by doing this through National Milk and going then back out to the countryside and selling people on a package, not one idea or another, but a whole package of changes, we think that this stands a much better chance because it will be comprehensive."
The change of season hasn't ended the summer of discontent for dairy farmers -- politically or economically. As the leaves change color, the question is, can dairy farmers come back from a long losing streak?
Dairy Profit Weekly editor Dave Natzke said that through August 2009, U.S. average milk prices have been running nearly 40 percent below the same period in 2008, taking a toll on dairy cash flows and cash reserves. The most recent USDA report showed August 2009 U.S. milk production was down slightly from a year ago, as economic factors continue to push cow culling higher.
"Like the changing weather, there are some regional differences," Natzke said. Latest USDA estimates show California and Western cow numbers and milk production are down compared to a year earlier, while cow numbers and milk production are steady or growing in the Midwest and parts of the Northeast.
According to Bruce Jones, dairy economist at the University of Wisconsin-Madison, the structure of California dairy farms and the need to buy more feed has resulted in far worse negative cash flows -- forcing them to use cash reserves -- at a faster rate than other regions.
National and regional dairy leaders continue to discuss policy alternatives and strategies to address the dairy economy. The question, however, is whether dairy farmers can survive much longer.
"I've heard from many dairy producers and organizations in the past couple of weeks who say things are on the verge of economic collapse, unless things improve dramatically, and quickly," Natzke said.
The new season has brought some hope. Cheese and nonfat dry milk prices, as well as federal and California milk marketing order prices, have begun a slow climb from depressed levels. The outlook for large corn, soybean and hay crops has helped bring feed prices down.
New York dairy and beef producer Glen Taylor recently completed the Beef Checkoff's online "Masters of Beef Advocacy" program. Taylor said the program equipped him to confidently speak with consumers about the things that are important to the beef industry.
Being able to present this message is becoming more and more important, according to Taylor, who will use his skills at an upcoming local consumer food group, which invited him and others to talk about how beef producers operate and how they look out for consumers in their production efforts.
Two key issues that Taylor sees as important are animal husbandry, which addresses consumer concerns over animal welfare, and environmental stewardship, which addresses care for the land.
Without taking that course, Taylor said farmers don't give them much thought because they are day-to-day activities that farmers practice"as best we can" and almost "take for granted." It's important to let consumers know this, he said.
The use of dairy ingredients is a growing part of the dairy industry and the dairy checkoff is working to keep it growing. DMI Vice President of Producer Relations Stan Erwine said over 1 billion pounds of milk are used each year as an ingredient in another food or beverage product.
He talked specifically about Starbucks, a company that uses over 2 billion pounds of fluid milk in their coffee products. Starbucks came to DMI about two years ago, seeking help with the development of some new menu items, Erwine explained, and one of the ideas that resulted from that was the use of dry whey protein with fiber in a new smoothie called Vivanno. Vivanno consists of fruit, milk, and a powder blend of dairy whey protein, Erwine said.
Starbucks uses about 3.7 million pounds of whey protein, he said, which requires more than 550 million pounds of milk.
"It's been a successful launch of a healthy new product that adds to Starbuck's menu," he said. A third flavor was just introduced. Vivanno is available in banana chocolate, orange mango and now strawberry banana.
It's important to come up with new and innovative ideas to spur dairy product use, Erwine said. It's really a response to "a dramatically changing consumer who wants new flavors and new products, and they want them conveniently."
Lee Mielke is a syndicated columnist and farm broadcaster based in Lynden, Wash. For more Dairyline go to www.capitalpress.com and click on "Dairy."