On the Dairy, In the Market: Two Separate Camps?
Oct 31, 2011
Against a backdrop of falling milk prices and high feed costs, cow numbers and production continue to increase.
Time stands still for no one, and the calendar has moved forward to November. The window for filling orders for the holidays is closing. Sure, there will be some fill-in orders that will need to be met, but, for the most part, cheese has already moved to packagers and recutters for gift boxes and other specialty items. Retailers mostly have stock on hand or have placed orders that will be filled shortly.
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Most years, cheese and butter prices decline during the last part of the year after year-end needs are filled. Buyers limit their purchases for inventory until either the price is right or the New Year begins. What this means is that buyers become less aggressive, most often resulting in lower prices.
We have already experienced lower prices since the record high set in August. Milk prices were good, but feed prices were high, challenging profitability. Fortunately, as cheese prices declined -- taking milk prices down with them -- grain prices also fell. According to USDA’s latest World Agricultural Supply and Demand report, milk price are expected to be more than $2.00 lower than this year. We can only hope grain prices will remain lower as well or it will be a very difficult year. Feed needs should have been hedged with the price decline to guard against strengthening prices.
Despite the relatively poor milk/feed ratio seen for quite some time, milk production continues to increase. The September “Monthly Milk” production report showed U.S milk production up 1.7% at 15,803 billion lb. Milk production has been higher than the previous year for 20 consecutive months. This is incredible considering some of the low milk prices experienced last year.
Production per cow continues to increase, with production up 12 lb. per head from a year earlier with 88,000 more head than a year ago. Of the top 23 states, only four states posted a decline from a year earlier. The states of Florida and Texas showed the most increase on a percentage basis, up 11.3% and 10.1%, respectively. Ironically, these states seemed to suffer the most from drought and heat this summer.
Despite relatively high culling rates, the nation’s dairy herd continues to grow. September dairy cattle slaughter totaled 247,000 head, up 4,000 head over the previous month and 2,000 head more than last year, according to the “Livestock Slaughter” report. The dairy herd however, was 101,000 head larger in September than it was a year earlier. It was also 1,000 head larger than August for the 23 selected states.
- Dairy Products report on November 1
- Fonterra action on November 1
- California 4a/4b prices on November 1
- October Federal Order class prices on November 4
- World Agricultural Supply and Demand report on November 9
- California Class I price on November 10
- Fluid milk sales report on November 11
- Fonterra auction on November 15
Robin Schmahl is a commodity broker and owner of AgDairy LLC, a full-service commodity brokerage firm located in Elkhart Lake, Wisconsin. He can be reached at 877-256-3253 or through their website at www.agdairy.com.
The thoughts expressed and the data from which they are drawn are believed to be reliable but cannot be guaranteed. Any opinions expressed are subject to change without notice. There is risk of loss in trading and my not be suitable for everyone. Those acting on this information are responsible for their own actions.