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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.

Milk Production Remains Stronger than Expected

Nov 26, 2012

With high grain prices, heavier culling and many dairy closures, many farmers firmly believe milk production has fallen further than USDA reports.

Hopes for strong milk prices and greater income over feed costs have been taken away for the time being. Declining grain prices improved the outlook for lower feed prices and thereby greater profitability. However, milk prices declined along with grain prices. There is a lag time for prices, with the November Class III price estimated to be near $20.80, down nearly 20 cents from the high set in October. December futures indicate a further decline of $1.50 if underlying cash prices remain at current levels.

The steep decline of underlying cheese and butter prices was a surprise to the industry. Prices were anticipated to decline slightly after holiday orders were filled. The decline of over 28 cents for cheese and 33 cents for butter over the past three weeks was a hard pill to swallow. Buyers are confident supply will be sufficient for demand and see no need to be aggressive.

Milk production was anticipated to decline by a greater amount by this time due to heavy culling and herd liquidation. More cows did go to slaughter, but production per cow was enough to offset the decline in cow numbers. USDA indicated on the October “Milk Production” report that milk production nationwide declined just 0.1% from a year ago. There was anticipation production would be down drastically by this time.

October dairy cattle slaughter jumped 17.3% from a year ago to a total of 285,000 head. This is the most dairy cattle slaughter in one month since January 1997. Despite this decline, there are only 25,000 less cows in the nation’s herd, according to USDA’s production report. This shows heifers are plentiful and have been coming into the herd, improving genetics and milk production. Production per cow increased 2 lb. in October, minimizing the effects of heavy culling.

High grain prices did not curtail milk production as much as had been anticipated. High culling has not had the anticipated impact either. This may be a factor as the next year unfolds, but for right now, supply is readily available for demand. If grain prices and milk prices remained in close relation with each other, continued aggressive culling will eventually curtail supply and tighten the market.

There has been a fair amount of disbelief over the October milk production report. Many farmers firmly believe milk production has fallen further than USDA reports. They know of neighbors or friends that have culled heavily or gone out of business. They have read about the high rate of foreclosures that have taken place across the country. However, no matter what we think, hear, read or expect, the reports are what we use to give an indication of what is taking place across the country. Not only that, but buyers and sellers are taking care of business as they see fit, keeping product moving and keeping plant inventory minimal.

So, the market has not yet changed the pattern. Improved profitability has been put on hold for the foreseeable future. This year has been filled with volatility, and it is not yet over. Use this volatility to your advantage through marketing.

Upcoming reports:

- November Federal Order class prices on Nov. 28
- Agricultural prices report on Nov. 30
- October Dairy Products report on Nov. 3
- Global Dairy Trade auction on Dec. 4
- World Agricultural Supply and Demand report on Dec. 11
- Dairy export report on Dec. 11

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

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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COMMENTS (1 Comments)

Senior PA Dairy Farmer - PA
Mr. Schmahl, thanks for reporting the real story here, which is that dairy FARMERS are in "disbelief" about these "reports" that favor the "industry." Of course they are! Farmers are not going to be brainwashed and suckered any more by the dairy "industry" propagandists employed by the "industry” to spin the message that farm milk prices drop because it's the US dairy farmers' fault for "producing" too much milk for the “market,” that ubiquitous false god of the corporatized, industrialized, globalized “New World Order.”

Raw milk prices are crashed at the will of the dairy “Industry” to suit their exploitive purposes because the structural methodology of the current federal minimum milk pricing formula ALLOWS this! “It’s the milk pricing formula, stupid!” to tailor Carville’s maxim.

You are wise to put some distance between your reputation and these "reports." Farmers have not forgotten the long history of financial ruin that follows like day and night on their dairy farms whenever "product" is "discovered" in caves and warehouses, or "under-reported," and/or brought into this country under irrational Free Trade "agreements and "treaties" for the express purpose to lower domestic dairy farmers' milk prices by using devalued imports.

And while we are scrutinizing the “truth” about what is really behind the huge spread between the raw milk price and what it really costs to produce milk on the farm, let’s not overlook the idiotic "industry" support for using the illegal, untested "milk glue," milk protein concentrate (MPC)," which displaces REAL domestic MILK, giving the "impression" of "overproduction" not only by the milk displacement itself but also by the cheese yield extension factors that we all know about.

Do you shop for "dairy" products? I do. Have you read the labels and noted the dairy “industry’s” bold use of MPC in sour cream, yogurt, "cheese," and countless other finished dairy products that historically used REAL US milk and cream? This charge includes dairy farmer co-operatives, too, while dairy farmers are constantly assailed by the costly, fancy, shiny flyers and newsletters featuring high-profile celebrities touting the alleged “benefits” to dairy FARMERS and their bottom lines from the decades long, federally mandated, milk ad tax, euphemistically called the “dairy checkoff,” which, regardless how the Supreme Court chose to package it, still violates the First Amendment rights of dairy farmers.

Exclude MPC from the "industry" pipeline and no longer will the "reports" be able to hide the truth about domestic milk production! The US is, in fact, and has been since the mid 90's, a dairy deficit country thanks to the anti-dairy farmer agenda entrenched in the dairy co-ops and in the federal dairy policy and legislation the
co-ops have been dominating since April 1981.

Thanks also for differentiating between "farmers" and the "industry." The "industry,” not dairy farmers, benefits from the current raw milk pricing system, which by law has been tilted to favor all things “industry," not agrarian. The current milk pricing system is un-Constitutional and unethical, spawned by dairy "industry" lackeys and lobbyists with special interest curried throughout the federal government.

Informed dairy farmers and their support business --- which are not getting paid and are not selling the supply inventories they need to keep their ag businesses going because (CAUSE AND EFFECT!) of the same unscrupulous federal dairy policies that keep US dairy FARMERS underpaid for the real value of their raw milk, --- are not supporting the "Margin Insurance" SCHEME in the current House and Senate 2012 Farm Bill drafts being crammed down our throats by Rep. Collin Peterson and NMPF. Why would they? Should they allow themselves to be scammed by an unscrupulous "insurance" proposal entitlement, funded by taxpayers, no less --- as are all entitlements --- to cover milk price shortfalls that benefit raw milk buyers, when dairy farmers are, by law, denied a realistic and ethical price in the federal minimum milk price for the milk they sell?

No longer are dairy FARMERS tolerating all the dairy "industry" hype and schemes that crash the farm milk price on 100% of US milk because of the "perception" of "surplus." Dairy farmers are not going to be kept "dumb" "down on the farm" any more...Look around…the truth is being processed even as we speak!

12:26 PM Nov 29th

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