AgDairy Market Update
Robin Schmahl is a commodity broker and owner of AgDairy LLC, a full-service commodity brokerage firm located in Elkhart Lake, Wis. He provides dairy market insight.
The Big Push: U.S. Dairies Advance toward Record Milk Production
Apr 16, 2012
Despite increasing penalties for heavy milk deliveries, many producers continue to boost their milking output as dairy prices decline and feed prices rise.
In some of my other articles, I have written about the ever-increasing milk supply, and it remains at the forefront of dairy news. Production during the winter outpaced the previous year by a significant margin due to mild weather.
This raised the idea that spring flush may not materialize due to already high milk production. However, spring flush is as strong as ever, with no slowing of milk flow. So much so that penalties are being imposed in the West while some other areas are indicating a loss of volume premium.
If the thought behind penalties is to deter milk production, it is not working unless some dairy producers go out of business. Most farmers are going to continue to push cows for greater production to compensate for lower prices. They will take the penalty or loss of volume premium for a short period of time to keep cows producing at their potential. They do not want to cut back on nutrition as it will affect the lactation curve of the cow.
USDA’s Dairy Market News indicates heavy milk receipts are resulting in unloading delays in the Northeast and Mid-Atlantic regions, reaching upward to 24 hours. Additional milk volumes are expected over the coming weeks. This is causing some problems in hauling and finding available tankers. Some plants are absolutely not taking on any more milk. A few plants in the Midwest, although full, are taking milk if it is offered at steep discounts reaching $5.00 or higher. This could be common over the next month or more.
Projected milk production for 2012 was increased on the latest USDA World Agricultural Supply and Demand report. USDA raised its estimate by 400 million pounds to 201.1 billion pounds and the highest production ever. If realized, this would be an increase of 4.9 billion pounds, or 2.5% over 2011, and would be the greatest annual increase since 2006.
Despite anticipated high milk production, milk prices are expected to remain higher than one would think based on production growth. Yes, they certainly are not as good as last year and not as good as we would like to see, but the All-Milk price is anticipated to average $17.50, compared to $16.29 just two year ago. Milk production that year totaled 192.8 billion pounds. The Class III price is expected to average $16.35, compared to $14.41.
The big difference comes from the price of feed. Corn prices averaged $3.55 for the 2009-10 crop year, and they’re projected to average $6.20 for the 2011-12 year. Soybean prices were $9.59 two years ago; they’re estimated to average $12.25 this year. Soybean meal prices reached $311.27 per ton two years ago, and projected to rise to $345.00 per ton this year. This tightens and, in some cases eliminates, profitability.
Dairy exports for cheese and whey continue to do well increasing over last year but certainly not to the extent of the previous year. February exports of cheese and curd increased 4% over the previous year, totaling 20,611.1 metric tons. Whey exports increased 2.1%, totaling 34,024.2 metric tons. Butter recorded a large decrease, down 42.0% from the previous year to 3,748.3 metric tons. Despite Cooperatives Working Together’s assistance in the exports of 37.4 million pounds so far this year, international demand for U.S. butter is suffering.
Milk production is expected to remain strong unless some adverse weather takes place. USDA is leaving corn carryout unchanged from the March estimates. Its anticipation of 95.9 million acres of corn potentially means lower prices will materialize.
Actually, December corn futures have been working slowly lower since August. It has been so subtle that most have not realized it. Prices peaked on August 31 at $6.73 1/2 and have made lower highs on each price rally since then, with a current futures price of $5.30. This trend will continue lower barring any weather problems.
My recommendation is to purchase put options for those who have forward-contracted corn for this year. This will lower your purchase price if corn price continues to decline. If you have extra corn that you will need to sell, do the same thing to protect the value of your corn crop. You certainly do not want to sell that corn below your cost of production.
- Fonterra auction on April 17
- March Milk Production report on April 19
- May Federal Order Class I price on April 20
- March Cold Storage report on April 20
- Livestock Slaughter report on April 20
- Annual Livestock Slaughter report on April 23
- Commercial disappearance on April 24
- Dairy Products annual report on April 27
- Agricultural Price report on April 30
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.