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| Milk production declines for sixth month in a row |
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December was the sixth month in a row that U.S. milk production was below that of a year ago, though not by much. The Agriculture Department’s preliminary data put the final month’s output at 14.6 billion pounds, down 0.8 percent from December 2008. Revisions added another 24 million pounds to the November estimate and totaled 14 billion pounds, down 0.8 percent from November 2008.
USDA’s preliminary estimate of total milk production in all 50 states in 2009 amounted 189.3 billion pounds, down 0.4 percent from 2008, the first year milk output fell since 2001, and only the third year of contraction in the last 18 years, according to the CME’s Daily Dairy Report.
December cow numbers in the 23 states totaled 8.3 million head, unchanged from November, but 206,000 less than a year ago. Production per cow averaged 1,758 pounds, up 29 pounds from December 2008.
California was down 4.6 percent, due to 76,000 less cows and a 10 pound drop per cow from a year ago. Wisconsin was up 4.3 percent, thanks to a 65 pound gain per cow and 4,000 more cows. New York was down 0.3 percent. Cow numbers were off 15,000 but output was up 35 pounds per cow. Idaho was up 0.4 percent despite a decrease of 4,000 cows, but output per cow was up 20 pounds. Pennsylvania was up 0.7 percent on a 40 pound gain per cow but 10,000 less cows, and Minnesota was up 3.2 percent on a 45 pound gain per cow and 2,000 more cows.
The biggest increase was Wisconsin. Iowa was next, up 3.6 percent, followed by Minnesota. The biggest decline occurred in Colorado, down 11.1 percent due to a 14,000 cow decline. Arizona was next, down 10.9 percent on 22,000 fewer cows, and Missouri followed with an 8 percent loss.
Meanwhile, the latest Livestock Slaughter report shows an estimated 231,200 culled dairy cows were slaughtered under federal inspection in December, up 22,300 head from November and 2,300 more than December 2008. January-December 2009 U.S. cull cow slaughter totaled 2.8 million head, 224,000 more than January-December 2008.
Producers trim herd size
Moderating feed costs and higher milk prices improve the outlook for producers, but herd size will continue to decline, according to USDA’s Livestock, Dairy and Poultry Outlook. Stronger exports, especially on a skims basis, and higher domestic use presage higher milk and product prices throughout 2010.
Cash dairy prices were mixed in the Martin Luther King Day holiday shortened week. Block cheese closed that Friday at $1.48 per pound, up 6.5 cents on the week and 40.5 cents above a year ago. Barrel closed at $1.5050, up 4 cents on the week, and 40.5 cents above a year ago. Four cars of block traded hands on the week and one of barrel. The NASS-surveyed U.S. average block price lost 9.3 cents, slipping to $1.5483. Barrel averaged $1.4794, up 0.1 cent.
Butter went in the other direction, closing Friday at $1.4675, down 5.75 cents on the week, but still 36.5 above a year ago. Fourteen cars were sold. NASS butter averaged $1.3391, up 0.9 cent. NASS nonfat dry milk averaged $1.2879, down 6.3 cents, and dry Whey averaged 39.02 cents, up 0.2 cent.
Downes-O’Neil Dairy Economist Bill Brooks expected additional gains in cheese on the week but said “butter is anyone’s guess.” Speaking in Tuesday’s broadcast; Brooks warned that the strong gains in butter, particularly on Friday, Jan. 15, may not be sustainable because it occurs at a time when we are seeing growing butter inventories, “but butter is a storable commodity that somebody might need and the folks who have it aren’t willing to let go of it unless they achieve a certain price.”
Losses in the cash nonfat dry milk market match those in price reports from USDA’s Dairy Market News. The pipeline has likely been refilled, according to Brooks, and Southeast Asian countries, especially China, is “coming up on a New Year’s celebration, which will curtail export business activity to that region where a lot of dairy products get shipped to.” It shouldn’t be a surprise to see some weakness in powder, he said, but he doesn’t expect prices to fall anywhere near support levels any time soon.
Global dairy prices are softening, according to Brooks, though part of that may be tied to currency exchange in converting it to U.S. dollars, adding; “there are a lot of dairy products in storage and a lot is in Europe in governmental hands, but still weighs on the market.”
Cheese price remains low
Downes-O’Neill Dairy Broker Dave Kurzawski said “The price of cheese is a little too cheap right now as there’s good, legitimate demand for both cheese and butter.” He believes the cheese price will make its way back up to the $1.50 level or higher now that we’ve worked through the holiday cheese, but he warned that the futures market is already pricing that so producers shouldn’t think there’s no ceiling on the futures price right now.
He said it’s critical for producers to understand what their cost of doing business is for 2010 before they do anything in risk management strategy. Ideally, Kurzawski wants producers to have a floor price under the market by buying $14 put options for 20 cents a month, making a $13.80 floor price for the balance of the year, and “let the market give you whatever it’s going to give you above that but at least have a worst case scenario plan in place for 2010.”
Kurzawski says producers are expressing more interest this year in futures trading, or at least learning more about the tools that are available to them. He said we’re seeing very volatile markets as they have been the past couple years and will continue to be and he believes both banks and producers “need to understand how to use these tools going forward.”
“Whether or not they do is another question,” he concluded, “but they need to educate themselves.” For more information, call Kurzawski at 1-800-231-3089. |
| 1/27/2010 |
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