The events in Japan were part of the discussion last week in Madison at the annual business conference of the Professional Dairy Producers of Wisconsin (PDPW). Dairy Profit Weekly Editor Dave Natzke reported that Virginia Tech emeritus agricultural economist David Kohl warned PDPW members the ongoing crisis in Japan could impact U.S. dairy producers on multiple fronts.

“With commodity markets being driven both by supply-and-demand issues and confidence in financial markets, and due to the size and global influence of the Japanese economy,” Natzke warned, “corn and soybean futures prices are moving up and down based on how effective the markets feel Japan is at containing fallout from failing nuclear reactors.

“And, as we saw earlier this week in Fonterra’s Global Dairy Trade auction, the uncertainty in financial markets has already driven down milk powder prices, with prices down 1,013 percent from two weeks ago.”

Kohl predicted that, while the price decline in feed commodities is welcomed by farmers buying feed, both grain and dairy markets will likely become even more volatile, making the timing of purchasing and selling decisions critical.
The impact could reach beyond commodity prices to credit availability and interest rates, according to Kohl, because, while most news reports cite China’s control of large shares of U.S. debt, Japan is actually the biggest U.S. lender. As Japan struggles to recover to rebuild its infrastructure, less money will be available on the world credit market, causing interest rates to rise, Kohl said.
Closer to home, Kohl warned the U.S. economy is not “out of the woods,” noting housing, unemployment and government debt are “headwinds.” He warned that $4 per gallon gasoline prices have both a financial and psychological impact on consumers, causing them to pull back on purchasing plans.

Using a football analogy, Kohl urged dairy producers to “play offense by managing their revenues; defense, by managing their input costs; and special teams, by managing credit and interest rates.”

Milk-per-cow to increase

The USDA’s Livestock, Dairy and Poultry Outlook said milk production is forecast to expand this year as the number of cows increase; milk per cow is also forecast to increase, albeit at a slower pace in 2011.

High feed prices and softening milk prices may ultimately blunt the expansion in cow numbers, according to the Outlook.

However through the first part of the year, strong export demand for all products and recovering domestic demand has supported milk prices, trumping higher feed prices for most producers.

Corn prices in 2010-11 are expected to be high by historic standards, averaging $5.15 to $5.65 per bushel for the crop year. USDA did not revise the corn supply, demand, and price forecast this month. The soybean meal price is forecast to average $340 to $370 per ton in 2010-11, and this month’s forecast was revised downward slightly. Feed ingredient prices could push the 16-percent mixed ration value up by more than $2 per cwt. from the $7.25 calculated for 2010.

Milk yield per cow rose by nearly 2.8 percent in 2010 and is forecast to climb by only slightly more than 1 percent in 2011, a rate much closer to long-term trend. Downward revisions in output per cow in late 2010 and slower than expected growth in January contribute to the forecast. Along with this, dairy cow slaughter has been trending upward since last fall, based on year-earlier comparisons.

The higher implied culling, along with an ample supply of dairy heifers, suggests that herd freshening may be underlying the expansion, and the introduction of a greater number of heifers could also slow the growth rate in milk per cow in 2011 as the younger cows typically will not hit their production stride in the first lactation, according to USDA.

Higher consumer milk prices

Consumers will see higher milk and dairy prices. How much remains to be seen as dairy product prices, particularly cheese, took a hit the middle week of March. The USDA announced the April Federal order Class I base milk price Friday morning at $19.43 per cwt., up $1.20 from March and a whopping $6.21 above April 2010.

That amounts to about $1.67 per gallon for soccer moms.

The Class III advanced pricing factor became the “higher of” in driving the Class I value for the first time since March 2010 and National Milk’s Roger Cryan does not expect an MILC payment for producers.

The NASS butter price averaged $2.0363 per pound, down 4.6 cents from March. Nonfat dry milk averaged $1.4733, up 12.7 cents. Dry whey averaged 46.18 cents, up 4.7 cents, and cheese averaged $1.9735, up 33.5 cents.
Cheese prices plummeted at the Chicago Mercantile Exchange. The blocks lost 13.5 cents, the barrels were down 5.25 cents, and the freefall continued from there as the markets awaited Friday afternoon’s February milk production data.
The blocks finished Friday at $1.685 per pound, down 33 cents on the week, but still 41.5 cents above a year ago. Barrel finished at $1.70, down 26.25 cents on the week, and 43.5 cents above a year ago.

Generally, a penny movement on cheese represents a dime on the milk price.
Twenty three cars of block traded hands on the week and 16 of barrel. The lagging NASS-surveyed U.S. average block price hit $1.9842, up 4.1 cents, while the barrels averaged $1.9733, up 3.5 cents.

Even the butter price lost ground, closing Friday at $2.07 per pound, down a nickel on the week, but still 60 cents above a year ago. Eleven cars were sold on the week. NASS butter averaged $2.0671, up 5.6 cents.
Cash Grade A nonfat dry milk closed Friday at $1.79 and Extra Grade closed at $1.80, both were unchanged on the week.

NASS powder averaged $1.4766, up 0.6 cent. Dry whey averaged 46.28 cents, up 0.6 cent.