Mielke: USDA warns of pressure on producer returns

Lee Mielke

By LEE MIELKE

For the Capital Press

The Agriculture Department raised its 2012 milk production forecast for the fourth month in a row in its World Agricultural Supply and Demand Estimates report. The report also stated: "High feed prices and weakening milk prices during 2012 are expected to pressure producer returns, leading to declines in 2013 cow numbers. However, improvements in returns during 2013 will moderate the rate of decline. ... Milk per cow is expected to continue to grow supporting increased milk production."

The 2012 production estimate, at 201.9 billion pounds, was up 800 million pounds from last month's estimate and "reflects a slower decline in cow numbers and slightly faster growth in milk per cow," USDA stated. The 2012 estimate is 202.6 billion. 2011 output totaled 196.2 billion, up from 192.8 billion in 2010.

Commercial exports were forecast to increase as the global economy improves and milk production increases. Imports will be slightly lower as domestic supplies increase. With improving demand and only modest increases in production, 2013 cheese, butter, and nonfat dry milk prices were forecast higher, but whey is expected to average near 2012 levels. Class III and Class IV prices for 2013 were thus forecast higher.

In the mean time; cheese, butter, and nonfat dry milk prices were reduced from last month on weaker-than-expected demand, but whey demand is stronger than expected so the price forecast was raised while 2012 milk price forecasts were reduced. The benchmark Class III milk price was projected to average $15.80-$16.30 per hundredweight, according to USDA, down from the $16.10-$16.60 projected a month ago, and compares to $18.37 in 2011 and $14.41 in 2010. The 2013 range was put at $16.20-$17.20.

The 2013 Class IV price was projected at $14.50-$15.10, down from $15.35-$15.95 expected last month, and compares to $19.04 in 2011 and $15.09 in 2010. The 2013 average was projected at $15.40-$16.50 per hundredweight.

FC Stone's May 10 eDairy Insider Opening Bell adds that the WASDE showed 2011-12 ending corn stocks were raised by an unexpected 50 million bushels to 851 million, well above the average estimate of 758 million. Ending corn stocks for the 2012-13 crop year also came in higher than expected at 1.881 billion bushels, compared with an average estimate of 1.704 billion bushels.

Soybean stocks were lower than anticipated with old-crop ending stocks at 210 million bushels, compared with an average estimate of 221 million. New-crop bean stocks of 145 million bushels were lower than the expected 170 million.

Hitting the low

FC Stone dairy economist Dave Kurzawski reported in Tuesday's DairyLine that we might have seen the low for cheese this year. Buying interest is out there, he said, and he believes the low might have been hit "as long as we can maintain the $1.45-$1.55 price through May," but he admitted it's a "big request this early on as the butter and powder markets remain weak."

"There is still room to go to the downside for cheese and Class III," he warned. "I'm not saying that is not going to happen," but warned that dairy producers may have to "make some drastic farm level decisions sooner rather than later as the profit margin on the farm is akin to the second quarter of 2009."

"There are good times to put hedges on and not so good times, right now we are in that no so good time to be putting a hedge on," he said. Even with $14-$15 prices out there, "the market has just taken a severe decline over the past three to four weeks and markets don't typically go straight down."

"If you are looking to put some hedges in place, monitor the grain and feed costs, which also could show some weakness moving forward," he said. "The market is making it real easy for you. As a producer it's real difficult to put any hedges of any worth on at this point and time."

He advised producers to "sit back and be concerned with other aspects of the business rather than hedging. Hopefully, a Class III rally in May will change the tune and producers can start to look at places to mitigate some risk." For more details, call Kurzawski at 800-231-3089.

Over there

The U.S. Dairy Export Council reports that global dairy prices are off 20 to 30 percent from their spring 2011 peaks as "swelling milk production worldwide has turned supply deficits into surpluses." As a result, rising inventories are expected to keep downward pressure on international dairy markets in the second half of 2012 according to presenters at USDEC's spring Board of Directors and Membership Meeting May 2 in Chicago.

Current soft conditions are "a painful reaffirmation that market cycles will continue even as demand, over time, outstrips supply," USDEC president Tom Suber said. "In fact, it's this period of temporary retrenchment that many of our work programs are intended to address." USDEC marketing, technical and research activities are supported by U.S. dairy producers through their checkoff.

Suber urged U.S. suppliers to protect volume and market share gains accrued in 2010-11. "We can't take the hit and balance the world market through our own inventories every time supply and demand run into an imbalance," he said. Speakers emphasized that although challenges to U.S. global dairy growth remain "USDEC trade policy and market access efforts continue to bear fruit."

Cooperatives Working Together accepted 10 requests for export assistance this week to sell a total of 749,572 pounds of cheese and 518,086 pounds of butter to customers in North Africa, Asia and the Middle East. The product will be delivered through July 2012 and raised CWT's 2012 cheese exports to 47.6 million pounds and 41.3 million of butter to 26 countries.

Planting trends

Dairy Profit Weekly reports that corn and soybean planting is running well ahead of last year and the five-year average, according to USDA's weekly Crop Progress report.

About 71 percent of U.S. intended corn acreage in 18 major states was planted as of May 6, compared to 32 percent on the same date last year and 47 percent for the five-year average. More than 90 percent of the corn acreage in Illinois, Kentucky, Missouri, North Carolina, and Tennessee is already planted.

About 32 percent of the planted corn had emerged by May 6, compared to 6 percent a year ago and the five-year average of 13 percent. The 18 surveyed states represent about 92 percent of U.S. corn acreage.

About 24 percent of U.S. intended soybean acreage in 18 major states (representing 95 percent of the U.S. total) was planted as of May 6, compared to 6 percent on the same date last year and 11percent for the five-year average. More than 50 percent of the soybean acreage in Arkansas, Louisiana and Mississippi is already planted this year, according to DPW.

Prices

California's June Class I price for the north is $16.81 per hundredweight. The southern price is $17.08. Both are down for the sixth month in a row, down 13 cents from May and $4.60 below June 2011. The northern price average now stands at $17.83, down from $19.42 at this time a year ago and $16.09 in 2010. The southern average is $18.10, down from $19.69 a year ago and $16.36 in 2010. The June federal order Class I base is announced by USDA on May 23.

Cash cheese prices saw some slippage the week of May 9 but inched a little higher in Friday's trading. The blocks closed at $1.50 per pound, still down 3 1/2-cents on the week and 12 1/4-cents below a year ago. The barrels closed at $1.45, down 2 cents on the week and 19 1/4-cents below a year ago. Three cars of block found new homes on the week and 14 of barrel. The lagging AMS-surveyed block average gained 1.4 cents, hitting $1.5169, while the barrels averaged $1.4835, down 0.7 cent.

Cheese plants are being offered surplus milk as butter and powder plants are operating at near capacity, according to USDA's Dairy Market News. Cheese manufacturers are cautious about building excess inventories as overall production is up. Cheese demand is less than hoped for as retailers are not featuring cheese as heavily as a few weeks ago. Export demand is being assisted through the Cooperatives Working Together program.

Cash butter ended the week higher, closing Friday at $1.32, up a penny on the week but 63 cents below a year ago when the price crashed 14 1/2-cents, to $1.95. It then rebounded 23 cents the following two weeks and stayed above $2 until early September. The latest AMS butter averaged $1.4133, down 1.4 cents.

Churning schedules across the country remain very active as cream supplies are readily available. As has been the case for past weeks, churning continues to outpace demand, thus inventories are building. Overall butter demand is fair. Buyers are hesitant and cautious with their orders, USDA says, as the cash price declines. Retail butter feature activity has slowed following the recent holiday but butter continues to be advertised in print ads.

Cash Grade A nonfat dry milk closed Friday at $1.1225 and Extra Grade closed at $1.0825, both down 2 1/2-cents. AMS-surveyed nonfat averaged $1.2169, down 0.1 cent, and dry whey averaged 56.97 cents, up 0.1 cent.

Fluid milk supplies across the U.S. remain heavy. The southernmost milk-producing states are moving past peak yearly production. Heat and humidity is increasing and slowing production. Northern states are still approaching peak production with pastures greening and planting on the minds of many dairy farmers. Western states are dealing with excess supplies in many cases and milk is being moved to find production facilities.

Class I demand is mostly flat as the end of the school year approaches. Interest from ice cream manufacturers is increasing and helping to clear some cream volumes from butter churns.

USDA data shows commercial disappearance of dairy products for December 2011 to February 2012 totaled 48 billion pounds, down 6.1 percent from a year earlier. Butter was down 22.2 percent; American cheese, down 3.5 percent; other cheese, down 5.3 percent; nonfat dry milk was up 17.7 percent, and fluid milk products were off 3.1 percent.

Back to the futures

After factoring in the announced Class III milk prices and the remaining futures, the average Class III milk price for the first six months of 2012 stood at $15.65 on March 2 and $15.70 on May 10. The last half of 2012 was averaging $16.52 on April 5, $16.26 on April 13, $15.95 on April 20, $15.61 on April 27, $15.08 on May 4, and was trading around $15.37 late morning May 11.

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