| Don’t cry over spilled milk, there’s plenty around |
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Dairyline
By Lee Mielke
We don’t have to cry over any spilled milk. There’s plenty of it around. July production in the 23 major states totaled 15.3 billion pounds, up 3 percent from July 2009 and output in all 50 states totaled 16.5 billion, up 2.9 percent.
Revisions added 23 million pounds to USDA’s original June estimate, putting it at 15.2 billion pounds, up 2.9 percent from June 2009.
July cow numbers the 23 states totaled 8.37 million head, up 19,000 from June but 26,000 head less than July 2009. Output per cow averaged 1,830 pounds, up 59 pounds from July 2009.
California production was up 4.7 percent from a year ago, despite 41,000 fewer cows, but output per cow was up 130 pounds. Wisconsin was up 2.2 percent, thanks to 6,000 more cows and 30 pounds more per cow. New York was up 2.1 percent, on 10,000 fewer cows but output per cow was up 65 pounds.
Idaho was up 5.2 percent, on 17,000 more cows and a 40 pound increase per cow. Pennsylvania was up 1.7 percent. Cow numbers were down 4,000 head but output per cow was up 40 pounds. Minnesota was up 1.4 percent, due to 1,000 more cows and a 20 pound gain per cow.
The biggest increase was in Arizona, up 8.8 percent. Oregon was next, up 8.3 percent, and Washington State was third, up at 6.2 percent.
The biggest decline was in Missouri, down 7.8 percent, due to 8,000 fewer cows, and 5 pounds less per cow. Illinois was next, down 1.2 percent with 1,000 fewer cows, and output per cow down 5 pounds. Virginia had the third biggest drop at 0.7 percent with 1,000 fewer cows, but output per cow was up 5 pounds.
USDA’s National Ag Statistics Service estimated 225,600 culled dairy cows were slaughtered under federal inspection in July, up about 11,400 head from June 2010, but 2,200 head less than July 2009. January-July 2010 dairy cull cow slaughter totaled about 1.6 million head, down about 78,000 from the same period a year earlier.
Cash dairy market
The cash dairy market seemed to ignore the bearish milk production data. Block cheese closed Friday at $1.6475 per pound, up 2.75 cents on the week, and 25.75 cents above a year ago. Barrel closed at $1.6150, up 3 cents on the week, and 24.5 cents above a year ago. The gains all came on unfilled bids.
No cheese was traded on the week. The NASS-surveyed U.S. average block price hit $1.5974, up 1.4 cents. Barrel averaged $1.5913, also up 1.4 cents.
Butter stole the show, jumping 8 cents on Aug. 19, and closed Aug. 20 at $2.04, up 12.25 cents on the week, 87 cents above a year ago, and the highest in six years. Eight cars were sold. NASS butter averaged $1.8508, up 4.8 cents.
Cash Grade A nonfat dry milk closed the week at $1.20, down a penny, while Extra Grade held all week at $1.2250. NASS powder averaged $1.1354, down 4.1 cents, and dry whey averaged 35.83 cents, down 0.1 cent.
Market analyst Alan Levitt, editor of the CME’s Daily Dairy Report, said dairy has been a “weather market” this summer as cheese and butter price are up 10-15 percent since July 1 and there’s a sense that butter could move higher but he’s not sure that cheese can go much higher.
Levitt said cheese continues to move at retail and promotions on pizza have helped revitalize that category, boosting demand for Mozzarella in particular. Schools are starting again, he said, another avenue for Mozzarella cheese to move but cheese buyers do not need to panic and build inventory, he said, because there’s plenty of inventory on hand and buyers are comfortable with the pipeline stocks that are already there.
Levitt pointed out that cow numbers are coming back. July cow numbers might be down a little due to the CWT culling, he said, but the trend is for more cows and production per cow “has been going gangbusters.” He said, “Everybody is revising their forecast. Sexed semen may also have something to do with that because there seems to be plenty of heifers waiting in the wings.”
Hot weather and humidity are doing a number on milk production and component levels. Production continues to decline seasonally and will until November, according to Levitt.
“So we’re on the downswing of that, although cheese production seasonally starts picking up in August and butter production picks up in September. The yields are definitely a concern,” he added. “Fat tests are running at 20-year lows.”
Butter price approaches $2
Downes-O’Neill dairy broker Dave Kurzawski said the potential was there for butter to hit $2 and “probably even higher than that.” Butter is tight and cream multiples are trading at well above normal averages right now, he said, and he believes that will lend some support to cheese.
“This is typically a quiet time of the year,” Kurzawski said. The block-barrel spread appears to be in balance but he doesn’t see that lasting much longer.
Will $2 butter attract imports? Kurzawski replied, “At some point you would think that should bring in some butter to our shores here but one of the reasons we’re at $2 or close to $2 is because we have seen a dramatic drop off in imports this year and I don’t expect that to change by the end of the year.” He said that some people are looking to Oceania to see if any butter will come out of that region of the world but he doesn’t expect much.
The high butter price and cheese prices at current levels is being driven more by weather than demand but Kurzawski pointed out that there is fresh demand for butter. Russia is a buyer or is going to be a buyer, according to Kurzawski, and they also import nonfat dry milk and Russia has also had its weather concerns.
“Generally weather markets fade about as quickly as they develop but in this case I do think there’s some promising sales on the retail level, there has been, and it’s good to see that U.S. buyers are staying here to buy butter and that has been the key to this butter price rally that we’ve seen so far this year and I expect it will be this way through the balance of 2010.”
As to risk management strategy, Kurzawski warns producers to be careful about selling 2010 contracts too aggressively. He recommends buying put options for the balance of 2010 and look for places to step into profitable levels in 2011.
The structure of the Class III market right now is bullish, he said, and in what is termed “backwardation,” where you have a premium on the nearby months and the prices get cheaper as you go further out. “That is a bullish structure,” Kurzawski concluded, “So I suspect that there’s going to be a spike in prices over the next 30 to 60 days. The question is how sustainable is it?”
The views and opinions expressed in this column are those of the author and not necessarily those of Farm World.
(Please refer to the newspaper for the remaining portion.) |
| 8/25/2010 |
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