Lee Mielke ~ Mielke Market Weekly

This column was written for the marketing week ending March 20.

U.S. milk production topped that of a year ago for the 14th consecutive month, according to preliminary data in the February Milk Production report. The U.S. Department of Agriculture estimates output in the top 23 producing states at 15.1 billion pounds, up 1.7 percent from February 2014. The 50-state total, at 16.2 billion pounds, was also up 1.7 percent from a year ago. Revisions raised the original January 23-state estimate by 17 million pounds, now reported at 16.5 billion pounds, up 2.2 percent from a year ago.

February cow numbers in the 23 states, at 8.62 million head, were up 2,000 head from January and 106,000 more than a year ago. The 50-State count, at 9.3 million head, is up 3,000 from January and 100,000 more than a year ago.

February output per cow in the 23 states averaged 1,757 pounds, up eight pounds from February 2014, and the highest production per cow for the month of February since the 23-State series began in 2003.

Continued increasing cow numbers and higher output per cow fueled the gains in February and offset California’s 3.8 percent decline, which resulted from a drop of 2,000 cows from a year ago and output per cow being down 70 pounds. Wisconsin poured it on in February, up 4.3 percent, thanks to a 65 pound gain per cow and 6,000 more cows. New York posted a 2.3 percent increase on 35 pounds more per cow and 1,000 more cows. Idaho was up 1.5 percent on 13,000 more cows, but output per cow was down 15 pounds. Pennsylvania was up 2.0 percent on a 35 pound per cow gain but cow numbers were down 1,000. Minnesota was up a healthy 4.3 percent on a 65 pound gain per cow though cow numbers were unchanged.

The biggest gain was in South Dakota, up 9.6 percent on a 50 pound gain per cow and 6,000 more cows. Michigan was next, up 7.8 percent, thanks to 22,000 more cows and 35 pounds more per cow. Colorado followed closely behind, up 7.6 percent on a 75 pound gain per cow and 5,000 more cows, followed by Utah up 6.9 percent. Again, only two states showed declines, California and New Mexico, where a 70 pound drop per cow put less milk in the tank even though cow numbers were unchanged.

Arizona was up 2.9 percent on a 25 pound gain per cow and 3,000 more cows. Texas was up 4.2 percent despite a 15 pound drop per cow but cow numbers were up 23,000 head. Washington State was up 2.4 percent, thanks to 8,000 more cows, but output per cow was down 10 pounds.

Dairy cow culling was down in February, according to the USDA’s latest Livestock Slaughter report. The data shows an estimated 242,000 dairy cows were slaughtered under Federal inspection in the month, down 33,000 head from January, but 5,000 head more than February 2014.

Looking at the first two months of 2015, 518,000 dairy cows took retirement from the dairy business, up 11,000 head from the same time a year ago. The heaviest culling occurred in the West, which included Arizona, California, Idaho, Oregon, and Washington, followed by the Midwest, Wisconsin, Minnesota, Michigan, Indiana, and the East, Pennsylvania and the Virginias.

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As it always does, the USDA’s monthly Livestock, Dairy, and Poultry Outlook, issued March 16, mirrored dairy projections contained in the March 10 World Agricultural Supply and Demand Estimates report. The  Outlook shows milk production for 2015 forecast at 211.1 billion pounds, 2.5 percent higher than the 2014 level of 206.0 billion pounds, but 400 million pounds less than forecast last month.

In January, U.S. milk production was 17.6 billion pounds, 2.1 percent higher than in January 2014. This growth was substantially lower than the December year-over year growth rate of 3.4 percent and much lower than the peak growth rate of 4.3 percent in September. Slower milk production growth was the result of slower year-over-year growth in output per cow, which fell from 2.3 percent in December to 1.0 percent in January. The year-over-year growth rate in milk numbers was 1.0 percent in both December and January.

Contributing factors for lower yields include declining milk prices relative to feed prices and the ongoing drought in California and other western areas of the United States. Although feed prices have generally declined since the second quarter of 2014, milk prices have declined proportionally more since September, resulting in a decrease in the milk-feed ratio from 2.97 in September to 2.09 in January.

As the drought in western areas persisted, California milk production fell in January by 2.6 percent from the January 2014 level, and New Mexico milk production fell by 1.9 percent. Even with the USDA’s assumption of a return of normal weather, low snowpack levels from the Cascades southward into the Sierra Nevada are a concern for water supplies in California and other western areas in coming months.

U.S. exports fell substantially in January for a wide range of dairy products, including whey products, cheese, and butterfat products. Nonfat dry milk exports increased from December to January; however, this was after a significant reduction last month. The labor dispute involving West Coast ports reportedly had an impact, although the extent is unclear. The dispute has been resolved and some manufacturers are resuming the use of West Coast ports for exports to Asian markets. In addition, a stronger U.S. dollar is likely making U.S. goods less competitive in world markets, according to the USDA.

Feed price forecasts remain conducive to expansion of the milk supply, with the corn price forecast for 2014-15 at $3.50-$3.90 per bushel and the soybean meal price forecast at $350-$390 per short ton. With January’s deceleration in the growth rate of milk per cow and the lingering effects of the drought in California and other western areas, the 2015 milk per cow forecast has been reduced to 22,640 pounds per year, 50 pounds less than forecast last month. Given the January increase in milk cow numbers, the 2015 milk cow forecast is increased in the first half of the year, resulting in an annual forecast of 9.33 million head, 5,000 more than forecast last month.

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Mid-March dairy prices are heading lower. The block Cheddar closed March 20 at $1.54 per pound, down 3 cents on the week and a whopping 88.75 cents below a year ago when they reached the second highest peak of 2014, $2.4275. You recall they peaked at a record $2.45 in mid September. The barrel Cheddar closed Friday at $1.52, down 2.50 cents on the week and 79 cents below a year ago. Fourteen cars of block and one of barrel were sold on the week. The National Dairy Products Sales Report-surveyed U.S. average block price hit $1.5640 per pound, up 0.6 cent, and the barrels averaged $1.5345, up a half cent.

Cash butter finished at $1.68, down 1.5 cents on the week and 24 cents below a year ago. Three cars were sold on the week and NDPSR butter averaged $1.7190, up 3.8 cents.

Cash Grade A nonfat dry milk continued its decline, closing the week at 97.5 cents per pound, down 1.75 cents on the week and the lowest spot price since January 22, 2015. Only seven cars were sold this week at the Chicago Mercantile Exchange. NDPSR powder averaged $1.0724 per pound, up 2.8 cents, and dry whey averaged 48.35 cents per pound, down 2.1 cents.

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The March 17 Global Dairy Trade auction reversed six sessions of gain as the weighted average for all products plunged 8.8 percent, following a 1.1 percent increase on March 3 and 10.1 percent jump on February 17. All products offered Tuesday were down.

The losses were led by rennet casein, down 15.2 percent, following a 0.7 percent drop last time. Buttermilk powder was next, down 11.6 percent after jumping 6.8 percent last time. Whole milk powder was down 9.6 percent following a 1 percent loss last time. Butter took a 9.4 percent hit after a 2.5 percent jump last time. Anhydrous milkfat was down 8.4 percent, following a 2.2 percent loss. Cheddar cheese was down 7.4 percent after increasing 10.8 percent in the last event, and skim milk powder was down 5.5 percent, after gaining 5.9 percent last time.

FC Stone reports the average GDT butter price equated to about $1.6126 per pound U.S., down from $1.7744 in the March 3 event. Contrast that to CME butter which closed Friday at $1.68 per pound. The GDT Cheddar cheese average was $1.4198 per pound U.S., down from $1.5318. The U.S. block Cheddar CME price closed Friday at $1.54. GDT skim milk powder, at $1.2390 per pound U.S., is down from $1.3314, and the whole milk powder average at $1.3280 per pound U.S., is down from $1.4702. The CME Grade A nonfat dry milk price closed Friday at 97.5 cents per pound.

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Speaking of the global market; the National Milk Producers Federation told lawmakers Wednesday that “exports have given the dairy industry a tremendous boost in recent years and that balanced free trade agreements, implemented with congressional trade negotiating authority, are crucial to the future economic health of U.S. dairy farmers.”

Testifying before the House Agriculture committee, NMPF board member and Wisconsin dairy farmer Pete Kappelman said U.S. dairy exports have increased 625 percent, to a record $7.1 billion since 2000, and that today, the equivalent of one day’s milk production each week is sold in foreign markets.

“That makes exports critical to the health of my farm and our industry at large,” Kappelman said, adding that, because overseas population growth outpaces domestic growth, exports are the key to continued expansion for dairy farmers.

Kappelman, who farms in Two Rivers, Wis., said it is not coincidence that enormous growth in dairy exports occurred while the United States was implementing several free trade agreements, and that each of those agreements was approved by using Trade Promotion Authority.

“In every case, our dairy exports to countries with which we implemented free trade agreements have shown substantial, sometimes dramatic, increases,” he said.

Right now, Kappelman said, Congress should approve new TPA legislation to complete a favorable Trans-Pacific Partnership agreement between 12 Pacific Rim countries.

“Significant access to TPP’s most protected dairy markets — Japan and Canada — is absolutely essential to us, and both of those countries have pointed to the importance of having TPA in place as TPP talks enter their final stage,” he said.

Lee Mielke is a syndicated columnist who resides in Everson, Wash. His weekly column is featured in newspapers across the country and he may be reached at lkmielke@juno.com.

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