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April 2009 Archive for Dairy Talk

RSS By: Jim Dickrell, Dairy Today

Jim Dickrell is the editor of Dairy Today and is based in Monticello, Minn.

Dairy’s Slow Slog to Recovery

Apr 27, 2009

By Jim Dickrell


With a $5 gap between most dairies’ cash costs and their mailbox milk price, I would have predicted a much more rapid drop in the nation’s milk supply.

Yes, milk supply is slowing, but at a glacial pace. January was actually up 1%. February, when adjusted for last year’s leap year, was down just 0.07%. And March was down a whopping 0.3%. Follow this link to the USDA report.

But remember, these numbers are compared to last year. More disturbing, however, is when you look at milk production per day through the first three months of 2009. U.S. milk production for every day in January averaged 520 million lb. In February, it jumped to 527 million lb., and in March, it climbed to 530 million lb.

Milk per day also isn’t slowing in the top five dairy states: California was pumping out 111 million lb. in January, and 113 million lb. in March.

Wisconsin went from 66 million lb. in January to 68 million lb. in March. New York, Idaho and Pennsylvania are each producing as much milk per day now as they were in January. In fact, Pennsylvania is up 1 million lb.

Cow numbers, over this same period, are starting to come down—29,000 fewer cows in March than in January. But of the top five states, only California, down 8,000 head, and Idaho, down 5,000, show appreciable declines. Wisconsin is actually up 1,000 cows.

Cows sent to slaughter are running nearly 100,000 ahead in the first quarter of 2009 compared to 2008.  But what this tells me, at least in many areas, is that producers are filling those empty freestalls and tie stalls with heifers. 

And maybe with a bit more feeder space available, the remaining cows can grab a couple more pounds of dry matter and put 5 lb. more in the bucket. Remember, the same thing happened with USDA’s diversion program back in the 1980s.

The unknown X factor in this equation is dairy producer liquidity. The 90 days or more of $5/cwt. losses are bleeding cash reserves dry. While farm management recommendations are to have six months of reserves, I would bet few do. So there could be a tsunami of culling (and foreclosures?) coming in the next 90 days. 

And then there’s the Cooperatives Working Together Program (CWT), which seems to have taken a lifetime to get the 7th round organized. Sign-up deadline is this Friday, May 1. It’ll take another couple/three weeks for CWT to sort out the bids.

If it’s 300,000 cows that get ear tagged for slaughter, they would represent 3.2% of the national herd. My guess it will be less than that, but who knows? But even if that number gets tagged, it will take awhile to work those cows through the system.

Hopefully, lower retail prices for milk, cheese and hamburger will translate into higher sales of milk shakes and cheeseburgers this summer. 

But it’s still going to be a slow slog to positive cash flow for many producers.

—Jim Dickrell is editor of Dairy Today. You can reach him via e-mail at jdickrell@farmjournal.com.

This column is part of the Dairy Today eUpdate newsletter, which is delivered to subscribers biweekly and includes dairy industry analysis, dairy nutrition information as well as the latest dairy headline news. Click here to subscribe.

 

Retail Milk Wars

Apr 13, 2009

By Jim Dickrell


When milk supplies are tight, retailers don’t worry a whole lot about what the Wal-Marts and Costcos of the world do.

But when milk supplies start gushing into surplus, things can get interesting. Two weeks ago, in fact, Dean Foods starting advertising run-of-press coupons in local newspapers here in Minnesota. The coupons, two per paper, offer 50¢/gallon off of Land O’Lakes Original, the BST-free version of LOL milk.

Dean’s now has exclusive rights to marketing the LOL fluid milk brand. And, as such, it is also responsible for the couponing effort. “The coupons on LOL Original is a reaction to some of the competitive activity we’re seeing in the market,” says Dave Haley, Dean Foods spokesman based in the Twin Cities.

“We’re doing it in select markets across the Midwest, and we plan to run the coupons in April, May and June,” he says.

If price is a driver, the coupons should be a winner—at least here in Monticello, MN, a town of 10,000.

I did some price comparisons at our three “big box” grocers here in town. (Our local independent grocer succumbed to the big guys several years ago.)
 

At Cub Foods, the only true grocer in town, LOL branded milk was selling for $3.29/gallon last week. Store brand conventional milk, i.e. not labeled as BST-free, was 50¢/gal cheaper, if you bought the milk in twin-gallon packs. The Dean’s coupons  would then put the LOL original on par with the store brand—without having to buy two gallons at once.
 

At our Wal-Mart, LOL Original was running 33¢/gal more than the conventional store brand milk, with no twin-pack purchases required.
 

At our Target Superstore (which means it has a grocery store along with clothes, house wares and electronics), store brand milk (all of which is now BST-free) was running from $3.19/gal for whole milk to $2.49/gal for 1%. Target does not carry LOL-branded milk.
 

Before couponing, Cub Foods had the cheapest whole milk at $2.79. Target had the cheapest 2% at $2.59 and 1% at $2.49. And Wal•Mart, the so-called price leader, only had the lowest price in the skim milk category, at $2.42/gal.
 

But once consumers bring their coupons to the checkout aisle, Wal-Mart won hands down in all categories: $2.67 for whole milk, $2.50 for 2%, $2.35 for 1%, and $2.22 for skim for the LOL Original..

What will be interesting to watch as this plays out is whether Cub and Target respond.
 

What’s also interesting is that Dean’s has felt compelled to start couponing, and doing so on its BST-free product. Recall that Dean’s started the push to BST-free in New England a couple of years ago, hoping to offer an organic-lite niche product to compete with a shortage of $6/gal organic milk.
 

Now, with the economy in tatters, consumers are backing off organic--organic whole milk sales dropped 2.6% in January and reduced-fat organic was down 4.7%. And, anecdotally, consumers are looking for even greater value and bargains by putting the cheaper store-brand milk into their shopping carts. When you’re out of work, whether milk is produced with BST and/or has a fancier name brand on the jug no longer matters.
 

We’re already seeing retail milk prices decline as Class I Federal Order minimum prices drop and work themselves through the marketing chain. In December, USDA says the average national price for a gallon of 2% was $3.27. In February, it had declined to $2.95.
 

And don’t get me wrong. Any further price competition in the dairy case has to be good for sales. But even at Wal•Mart’s $2.67 for LOL Original whole milk, there’s still got to be a bit of margin left for Dean’s and Wal•Mart. With 11.6 gallons per 100 lb. of milk, that suggests a gross revenue of $31/cwt for that $2.67/gal. (The Upper Midwest April Class I price is $12.16/cwt for 3.5% milk in the base zone, up from $11.23 in March.  /files/AdvancePrice--04-09.pdf. )
 

So the margin should be enough to cover the coupon and maybe even the paltry 35¢/cwt premium LOL producers get for shipping BST-free.


 

—Jim Dickrell is editor of Dairy Today. You can reach him via e-mail at jdickrell@farmjournal.com.

This column is part of the Dairy Today eUpdate newsletter, which is delivered to subscribers biweekly and includes dairy industry analysis, dairy nutrition information as well as the latest dairy headline news. Click here to subscribe.

 

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