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Manufacturers feel pressure of increased milk supply
February milk production in the top 23 states totaled 13 billion pounds, according to the USDA’s preliminary estimate, up 5.9 percent from a year ago. January revised production, at 14 billion pounds, was up 5.5 percent from January 2005. Cow numbers totaled 8.21 million, up 118,000 from January and 121,000 above a year ago. Output per cow averaged 1,588 pounds, up 66 from a year ago.

California production was up 6.6 percent, thanks to 39,000 more cows and 70 pounds more per cow. Wisconsin was up 4.4 percent with output per cow up 55 pounds. New York was up 4.8 percent, thanks to a 70-pound gain per cow. Pennsylvania was up 8.2 percent, on a 130-pound gain per cow. Idaho was up 8.3 percent, on 36,000 more cows. Minnesota was up 4.2 percent despite cow numbers being off 5,000 head. Output per cow was up 75 pounds.

New Mexico had the biggest increase, up 17.2 percent, on 24,000 more cows and output per cow up 140 pounds. Texas followed with a 15.2 percent gain. Output per cow was up 195 pounds and cow numbers were up 8,000. The biggest decrease occurred in Florida, down 5.9 percent. Kentucky was next, down 3.6 percent.

Prices down slightly this week

The production report sent Class III futures sharply lower Monday but the cash market wasn’t quite so dramatic, although Downes-O’Neill dairy economist, Bill Brooks, said in Tuesday’s DairyLine that the spot market typically doesn’t react a great deal to USDA reports but rather is more influenced by supply and demand.

He quickly added however, with that big an increase in production and the anticipation of a similar gain in March, it probably has people realizing that we’re not going to see in any real shortage of dairy products in the next three to six months and that may influence when they want to sell product.

Block cheese closed Friday, March 24, at $1.1850 per pound, up a quarter-cent on the week, but 41.75 cents below a year ago when block jumped 12.25 cents. Barrel closed Friday at $1.13, down a half-cent on the week, and 43.5 cents below a year ago when barrel jumped 12 cents. Two cars of barrel were all that sold on the week. The NASS-surveyed U.S. average block price fell to $1.1405, down 0.9 cent. Barrel averaged $1.1263, down 0.7 cent.

Cash butter ended the week at $1.15, down 2 cents on the week, and 39.75 cents below a year ago. Fourteen cars were sold. NASS butter averaged $1.1524, down 1.9 cents.

Manufacturers feeling pressure

Milk supplies are taxing manufacturing plants around the country, according to the USDA, and contacts report that the spring flush arrived early and they expect it to “hang around” for some time.

On the bright side, Brooks reported seeing some retail promotions on butter in the Kansas City area. Easter is less than a month away, he said, so that will help. He has also seen features in grocery stores on shredded cheese as opposed to processed slices or chunk cheese and he reported that the lower cheese prices are starting to show up and hopefully will spur demand and keep inventories from growing to over burdensome levels as is the case with the milk supply.

He warned that cheese prices could slip closer to support again although the industry seems comfortable with prices in the mid to upper teens. Pushing it down probably isn’t going to spur many additional sales at the wholesale level, he said. “The incentive to drive prices lower really isn’t there at the moment.”

Preliminary data from February’s Cold Storage report showed butter stocks totaled 151.7 million pounds, up 41.6 million pounds or 38 percent from January, and 40.8 million or 37 percent above those a year ago. Revisions lowered January holdings by nearly 4.5 million pounds from last month’s estimate.

American type cheese stocks totaled 548.5 million pounds, up 15.6 million pounds or 3 percent from January, and 43.5 million or 9 percent above a year ago. January’s inventory was revised up 6.7 million pounds.

Total cheese inventories amounted to 775 million pounds, up 24.5 million pounds or 3 percent from January and 51.3 million or 7 percent above a year ago. January data was revised up nearly 6.8 million pounds.

Herd retirement time?

There were 171,000 dairy cows exiting the dairy business in February, according to the USDA’s latest Livestock Slaughter report issued Friday, down from 202,000 in January, and 14,000 fewer than in February 2005.

The downturn in prices and the doubling of the CWT program assessment has farmers wondering when the next herd retirement will take place. National Milk’s Chris Galen reported Wednesday that the increased assessment does not necessarily mean there will be a herd retirement program in 2006.

“Farmers are anxious when they see what’s happening to prices,” Galen said, and they have been calling National Milk, asking about another buyout. “What we have had to explain,” he said, “Was that, unless we have additional financial resources to work with, through the higher assessment, there can’t be another herd retirement in 2006, we just simply don’t have the money in the CWT budget to afford one on the scale of what we did the past three years.”

“If we don’t have the assessment, there can not be another herd buyout this year,” Galen said, “On the other hand, even with the higher assessment which won’t take effect for four months it’s still going to take us a while to bank the additional revenue necessary to pay for another herd retirement.” He said they expect to do more cow removals “but the money needs to be there first.”

Meanwhile, the CWT’s export assistance program continues to move product offshore but there isn’t enough money in that fund either to fund a herd removal.

The export assistance will continue, according to Galen, especially since there is such a favorable marketing environment right now, considering U.S. cheese prices versus world prices.

“A great deal of the money that has been collected in the past eight to ten months and what will be collected in the next eight to ten months is earmarked for the herd retirement which has already been conducted,” Galen concluded. “Right now, we need to build up our reserves again, particularly through the higher assessment, if we are going to do something like that in the future.”

The CWT accepted a bid Tuesday from Dairy Farmers of America to export 42,240 pounds of Cheddar cheese to Tunisia and a bid was accepted Friday from California Dairies to export 495,000 pounds of butter to Turkey. CWT’s 2006 exports now total 2.26 million pounds of cheese and 2.5 million of butter.

3/29/2006