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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.

Higher Milk Production in 2013?

Oct 15, 2012

Higher dairy prices are expected to boost milk output, but questions about next year’s supply remain.

It certainly is going to be a difficult year for dairy farmers. There has been a significant amount of farm foreclosures and liquidations due to the inability of those operations to cash flow. Some are selling out because they are just tired of working hard and still losing money.

Whatever the reason, many of those cows are going to slaughter. Not many dairy farmers want to take on more mouths to feed at a time when feed prices are high and profitability non-existent. Cow numbers have been declining but still remain higher than a year ago. This is expected to fall below year-earlier levels over the next few months. The unknown is how many heifers will come into herds to replace those that have been culled. Farmers may be unwilling to sell good heifers for slaughter or for a significantly reduced price and may do what they need to do to hold onto those animals and improve genetics.

USDA anticipates higher milk prices in 2013, resulting in greater milk production. On its recent World Agricultural Supply and Demand (WASDE) report, USDA increased the milk production estimate 800 million pounds to 199.7 billion pounds. If this production is realized, it would be slightly higher than expected production for this year. This seems a bit of a stretch given current market conditions. Bottlers and manufacturers are comfortable with milk supplies through the end of the year.

But there is much speculation as to milk supply next year. Reduced cow numbers as well as the effects of delayed conceptions resulting from the prolonged hot weather will be evident next year. If grain prices continue to decline and culling slows, milk production may stabilize. Increasing cow numbers nationwide is something that is not expected to happen over the next year. It will likely take until the harvest of first-crop hay before farmers may breathe a little easier, but it will take until grain harvest next fall before supply will not be as tight, that is if weather is good and crops grow and mature properly.

Milk price estimates were increased across the board on the WASDE report. The 2012 Class III price was raised an average of 75 cents to $17.60 while the 2013 price was raised $1.00 to $18.20. This would be the second highest Class III average price if it comes to fruition, with the highest being in 2011. Class IV was raised 50 cents to an average of $16.10 this year and up 85 cents at $17.25 next year. The All-Milk price average was raised 65 cents to $18.55 while next year’s price was raised $1.10 to $19.45.

Dairy exports for August were mixed. Exports of cheese and curd totaled 20,123 metric tons, up 30% from a year ago, according to USDA/FAS trade data. NDM/SMP increased 17.1%. Whey declined 0.6%. Fluid milk and cream declined 24.2%, and butter fell 49.2%. Butter exports have been struggling. During the first eight months of this year, only May showed higher exports than the previous year. In fact, it was the only month showing positive exports since June 2011.

The combination of strong domestic demand and assistance from Cooperatives Working Together has been enough to keep price in close proximity to cheese. Handlers are not too concerned over tight supply through the end of the year. In another month, aggressive buying for the holidays will be mostly complete. Fill-in supplies will always be needed and easily met. Stocks are expected to finish the year higher than the end of 2011. However, this will be little consolation when facing the New Year and potentially tighter milk supply.

Competition will come from overseas. So even though domestic milk supply may be reduced indicating higher milk prices, imports may have a limiting factor for price potential. Australian milk production in 2013 is forecast at 10.14 million metric tons, 1.2% higher than the estimated 10.01 produced in 2012. In 2012, cheese production grew on an annual basis 12% to an estimated 385,000 metric tons and is forecast at 390,000 metric tons in 2013. Dairy exports in 2013 are projected at 673,000 metric tons, 14% higher than in 2012 Cheese exports will be the leader and are projected to increase 24% in 2013.

Upcoming reports:

- Global Dairy Trade auction on Oct. 16
- Livestock, Dairy, and Poultry Outlook report on Oct. 17
- September Milk Production report on Oct. 19
- September Cold Storage report on Oct. 22
- November Federal Order Class I price on Oct. 24
- September Livestock Slaughter report on Oct. 26

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.

 

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