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AgDairy Market Update

RSS By: Robin Schmahl, Dairy Today

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.

Do Dairy Imports Significantly Affect Prices?

Mar 18, 2013

They’re not trivial, but there are more important factors, including U.S. exports and the loss of the monthly milk production report.

Milk production remains strong with the first signs of spring flush being seen at the processing level. Spring flush is not expected to be as strong as usual due to continued heavy culling.

However, production is expected to be slightly higher than last year. In the future, this will be very difficult to measure as the monthly Milk Production report will no longer be available. Actually, two key reports in the dairy industry are being discontinued after the February report is released as part of the budget cuts. The monthly Milk Production reports and the bid-annual cattle inventory reports.

This has created quite a bit of discussion in the dairy industry and rightly so. The industry will no longer be able to measure the trend of milk production and there will be no way to determine the amount of increasing or decreasing milk production, or no way of knowing the increase or decrease of cow numbers. We will not know the percentage gains or losses in individual states. In essence, the industry will be blind with only regional and manufacturer reports providing some indication as to the level of milk production. It will be very difficult for the industry to adjust to this.

USDA projects the nation’s dairy herd to average 9,195,000 head this year, slightly lower than last year. Output per cow is projected to increase to 21,960 pounds. These projections are a bit surprising as they do not seem to reflect the effects of a continued low milk/feed ratio and continued heavy culling. We are seeing another round of heavy culling as more farmers are being forced out of business while others see their feed supply dwindling.

There have been some questions as to how much impact imports are having on our milk prices. Questions generally always come up when profit margins are tight and milk prices are lower than desired. It is obvious imports do have an impact, but the impact is not as great as perceived. Cheese imports in 2012 totaled 340.0 million pounds. Net cheese imports recently exceeded exports for the first time since the end of 2009. However, some months are higher than others.

Although imports of 340.0 million pounds are substantial, it only amounts to 3%-4% of total milk production in the nation. There will always be some products that are imported due to insufficient quantities of it in our country or for various other reasons. The greater reason imports may increase is due to the strength of the U.S Dollar. Importers will bring in more product if domestic prices are high or the exchange rate of the dollar makes it attractive. On a milk solids basis, imports amount to 3.2% of total milk solids produced. Exports of dairy products were 13.2% of total milk production on a milk solids basis.

Total volume of dairy products exported in 2012 reached over just over 4.0 billion pounds. Of that amount, cheese and curd exports totaled 573.3 million pounds, up 15.8% from 2011. The total value of U.S. dairy exports in 2012 reached $5.21 billion, 8.0% above 2011 and a new record. The value of lactose products jumped 50% with an increase of $192.3 million, yogurts increased 28.7%, and whey and whey products rose 11.5%. Cheese and curd export value increased $152.2 million, up 15.9%. Ice cream and frozen desserts jumped 39.6%.

So, despite the idea that milk prices could be higher if there were no imports, this will never be a reality. There are many factors involved in dairy prices. We are competing on a global scale and prices will rise and fall accordingly.

Upcoming reports:

- The Global Dairy Trade auction in March 19
- The February milk production report on March 19
- Advanced Federal Order Class I price on March 20
- February Livestock slaughter report on March 21
- February Cold Storage report on March 22
- The Agricultural Prices report on march 27

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.

This material has been prepared by an employee or agent of AgDairy LLC and is in the nature of a solicitation. By accepting this communication, you acknowledge and agree that you are not, and will not rely solely on this communication for making trading decisions.
The thoughts expressed and the basic data from which they are drawn are believed to be reliable but cannot be guaranteed. Any opinions expressed herein are subject to change without notice. Hypothetical or simulated performance results have certain inherent limitations. Simulated results do not represent actual trading. Simulated trading programs are subject to the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. There is risk of loss in commodity trading may not be suitable for recipients of this publication.

 

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COMMENTS (2 Comments)

Dairyguy - Belgrade, MN
Robin, it is hard to believe you could do a story on imports without mentioning MPC's? Each of the last 3 year down cycles in milk prices started with big increases in MPC imports. Why worry about production reporting when we have never had MPC import reporting.
10:49 AM Mar 22nd
 
Dairyguy - Belgrade, MN
Robin, it is hard to believe you could do a story on imports without mentioning MPC's? Each of the last 3 year down cycles in milk prices started with big increases in MPC imports. Why worry about production reporting when we have never had MPC import reporting.
10:49 AM Mar 22nd
 

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