Mielke: Surge of milk portends troubles

Lee Mielke

By LEE MIELKE

For the Capital Press

Rising milk production is the "white cloud" hiding the silver lining on dairy's horizon. Jerry Dryer warned in his Dairy and Food Market Analyst.

"This is not the traditional spring flush arriving earlier than usual," Dryer wrote. "There will be a traditional spring flush which starts in the South this month and then presses north extending thru May in the Northeast and Upper Midwest.

"These cows have no regard for the problems being created," Dryer wrote. "Some processors are already having problems in their search for available plant capacity. Discounts of as much as four dollars per hundredweight are required to move milk to some plants in the Upper Midwest."

Dryer has identified two very large operations that historically handle surplus milk during the flush in the West and both are "already full." And this is despite very high cull prices.

Dryer has identified two very large operations that historically handle surplus milk during the flush in the West and both are "already full." And this is despite very high cull prices.

"It will take a while for the lower prices to have an impact, but then less efficient milk producers will have no choice," Dryer warned. "They will put a padlock on the barn door. Bankers will be patient with good producers, but have no time left to work with the marginal."

He predicts a "greater-than-usual exit this year."

Production rising

Milk is increasing in the Midwest. Surplus supplies are moving from flat to a minus $4, based on class usage. Milk output is strong in the Southwest. Arizona and California processors are seeing intakes build and creating more handling issues. Northwest production is trending higher on a week-to-week basis and above year ago levels and the Seattle-based Northwest Dairy Association has even created a "base" program for the months of April through September.

Herd size

This week's Livestock, Dairy and Poultry Outlook reported that the dairy cow herd size is currently above a year earlier, but weakening producer returns should prompt herd size reduction by the end of 2012. Expected higher milk production will lower price prospects this year for milk and the major dairy products, except whey. Exports will help support dry product prices. Whey prices continue above 2011 and milk powder prices should strengthen later in the year.

The January Cattle report showed a 1 percent higher inventory of dairy cows on farms than a year earlier. However, the number of heifers for milk cow replacement and the number of heifers expected to calve in 2012 were both reported 1 percent below a year earlier.

Although the cow inventory forecast for 2012 is only raised slightly to 9.19 million head, the January report points to higher forecast cow numbers early in the year, with a sharper fall off than projected in January expected later in 2012.

Milk per cow is forecast higher than in January at an average 21,645 pounds. USDA said the higher than expected milk per cow observed in the fourth quarter of 2011 will likely continue through 2012. Further, the mild winter is expected to benefit production, especially in the first quarter. On balance, this forecast would lead to 199 billion pounds of milk production in 2012, higher than the January estimate and 1.4 percent above the 2011 total output, according to USDA.

Exhort exports

Dairy Profit Weekly reports that, based on the latest data from the U.S. Dairy Export Council and National Milk Producers Federation, December U.S. dairy product exports were equivalent to 13 percent of U.S. milk solids production, the 21st straight month in which exports have been between 12 and 15 percent of output. 2011 exports were equivalent to 13.3 percent, compared with 12.8 percent in 2010. Meanwhile, imports as a percent of milk solids production were just 2.9 percent in 2011, DPW said.

The CME's Daily Dairy Report says cheese imports at 315.3 million pounds, were up 3.4 percent from 2010, the first increase in nine years. Last year's small gain notwithstanding, U.S. cheese imports have dropped by 34 percent since peaking in 2002, according to the DDR. Milk protein concentrate imports totaled 118.7 million, down 8.1 percent from the prior year. Imports of casein and caseinates jumped 39 percent however, to 195.1 million. Imports of butterfat dropped 6.3 percent to 28.8 million, according to USDA trade data.

Worldwide, prices were lower on the semi-monthly Global Dairy Trade auction. The weighted average price for skim milk powder was $1.48 per pound, down 2.6 percent from the Feb. 1 auction. Winning prices for whole milk powder averaged $1.55 per pound, down 3 percent. The weighted average price for anhydrous milk fat was $1.61 per pound, down 10.5 percent. Cheddar cheese was $1.61 per pound, down 2.3 percent.

Cooperatives Working Together accepted 36 requests for export assistance this week to sell a total of 6.2 million pounds of cheese and 4.5 million pounds of butter to customers in Asia, Central America, the Middle East and North Africa.

Dairy prices

Cash cheese prices were mixed on the week of Valentine's Day as they awaited Friday afternoon's January Milk Production report. The blocks closed that Friday at $1.4875 per pound, up 1 1/4-cents on the week but 46 3/4-cents below a year ago. The barrels closed at $1.48, down a half-cent on the week and 43 3/4-cents below a year ago. Thirteen cars of block found new homes on the week and three of barrel. The NASS-surveyed U.S. average block price fell to $1.5311, down 2.8 cents, while the barrels rolled to $1.5294, down 1.2 cents.

FC Stone dairy economist Bill Brooks said in the Feb. 13 eDairy Insider Opening Bell that cheese prices dropped more quickly than he originally anticipated, which could mean they'll turn around more quickly. He anticipates that cheese purchases for summer grilling will begin to boost prices in March or early April but until then, "prices will likely trade in a relatively tight range."

FC Stone dairy economist Bill Brooks said in the Feb. 13 eDairy Insider Opening Bell that cheese prices dropped more quickly than he originally anticipated, which could mean they'll turn around more quickly. He anticipates that cheese purchases for summer grilling will begin to boost prices in March or early April but until then, "prices will likely trade in a relatively tight range."

Butter saw the fifth week in a row of decline but ended Friday on an up note, gaining a penny and three quarters on five offers. It closed at $1.4150, still down 1 3/4-cents on the week, and 59 cents below a year ago when it lost 8 1/2 cents. Ten cars were sold. NASS butter averaged $1.4991, down 4.9 cents.

Cash Grade A nonfat dry milk closed at $1.2925, down 4 1/4-cents, and Extra Grade held all week at $1.2975. NASS powder averaged $1.4039, up 1.9 cents, and dry whey lost another 2.3 cents, slipping to 64.14 cents per pound.

Looking "back to the futures;" the average Class III milk price for the first six months of 2012 stood at $17.60 per hundredweight (cwt.) on January 6, $17.28 on January 13, $16.81 on January 20, $16.85 on January 27, $16.35 on February 3, (after factoring in the announced January Class III milk price) $16.19 on February 10, and was hovering around $16.02 late morning February 17.

California's March Class I milk price is $17.60 per cwt. for the north and $17.87 for the south. Both are down 92 cents from February and $1.64 below March 2011. This is the third month in a row they have declined. The 2012 average now stands at $18.67 for the north, up from $17.52 in the same period a year ago. The southern average is $18.94, up from $17.79 a year ago.

The March Federal order Class I base price is $16.30, down 73 cents from February, $1.93 below a year ago, and equates to about $1.40 per gallon. That put the 2012 average at $17.38, up from $16.44 at this time a year ago and compares to $14.74 in 2010.

The NASS-surveyed butter price averaged $1.5220 per pound, down 6.7 cents from February. Nonfat dry milk averaged $1.3930, down 2.3 cents. Dry whey averaged 65.31 cents, down 3.8 cents, and cheese averaged $1.5553, down a nickel.

Milk Income Loss Contract

Dairy producers will be receiving Milk Income Loss Contract payments. National Milk Producers Federation projected the following as of Feb. 9: 27.3 cents for February; 52.7 cents for March; 79.38 cents in April; 77.84 cents for May; 63.83 cents in June; 45.57 cents for July; and 10.45 cents for August.

Details are posted at www.nmpf.org/milk_pricing/milc payments

The University of Wisconsin's Brian Gould also updates MILC projections each week at http://future.aae.wisc.edu/collection/software/current_MILC_est.xls

The March Class I base was a dime lower than the federation projected so the MILC payment may be a nickel higher than anticipated however Gould predicted a March MILC of 37 cents, prior to Friday's futures settlements.

Price survey rule

USDA issued a final rule this week implementing changes in the weekly dairy product price survey. Beginning April 4, survey prices will be published every Wednesday and the data will be collected by the Ag Marketing Service, rather than NASS. These prices will be used in federal order formula pricing starting with the May Class I base price on April 18.

Antitrust settlement

DPW also reported this week that the on-again, off-again financial settlements between Dean Foods and Southern Marketing Agency and dairy farmer plaintiffs in the "Southeast Milk" antitrust lawsuit are apparently on again.

Original terms of a $140 million Dean settlement were announced July 14. However, dairy farmer members of Dairy Farmers of America, a co-defendant in the lawsuit, were decertified from the class two weeks later. On Feb. 14, U.S. District Judge Ronnie Greer officially reinstated DFA producer members into a "DFA Settlement Subclass," making them eligible for the Dean payments, as well as a separate, $5 million SMA settlement proposal. Attorney fees and legal costs could take as much as a third of the total. Producers must fill out settlement claim forms and mail them to the fund administrator by May 1. The trial date for DFA, National Dairy Holdings LP, Dairy Marketing Services LLC, Mid-Am Capital LLC, and Gary Hanman, former DFA CEO, is July 10.

Politics

The International Dairy Foods Association's Connie Tipton spoke at a roundtable this week sponsored by the Republican members of the House Committee on Small Business examining the interests of America's small businesses in the next farm bill. The roundtable included groups representing wheat, corn and soybean growers; pork producers; and dairy farmers.

Tipton told committee members the dairy industry is "heavily regulated by rules that were designed to address problems that existed nearly a century ago and that those regulations now stifle innovation and growth."

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