Market Watch Diary: Where’s the milk?

April 1, 2014 08:29 PM
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Record-high milk prices notwithstanding, a recovery in milk production kept dragging its feet during February 2014. How long can this last?

First, look over our shoulder: Nationally, milk production was up just 1.1% in February and up only 1% in January.

Production was below one year ago during November and December 2013 and just fractionally higher than a year ago for the entire fourth quarter of 2013. Production was up a mere 0.7% for all of 2013.

Milk cow numbers climbed through the first half of 2013, then fell, finishing the year 16,000 head below one year ago. About 9,000 cows were added in January 2014, but none during February. Among the top 23 states, milk cows actually declined by 1,000 head during February.

Nationally, there were 9.21 million cows in the herd this past February versus 9.22 million cows one year ago.

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Perceptions play role in markets

Production per cow was modestly higher during the fourth quarter of 2013 and up just 1.2% during February. Harsh weather in many states east of the Rocky Mountains helped keep a lid on output per cow. And this weather compounded the effect of feed quality issues.

Meanwhile, dairy product prices and all-milk prices have been setting records as consumers in the U.S. and customers around the globe keep using more dairy.

The all-milk price approached $20 in September and averaged $21.50 during the fourth quarter last year. In January, it spiked to $23.50 and in February, up to $24.70. At this writing, it looks like March will be higher, too.

Now, a look ahead. When will you start responding to these prices? When will you start making more milk? You’re the expert in that department. I’ll just keep talking about demand.

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Interestingly, those high milk prices of fourth quarter 2013 had not arrived in the grocery store yet in February, according to Consumer Price Index data from the U.S. Census Bureau. The February "dairy and related products" index was up just 0.6% versus one year ago.

Beverage milk prices were only up 2.6%, while the February all-milk price was 27% higher than one year ago. Higher dairy prices are diffused as products move through the foodservice pipeline.

And the export market? Some prices in the U.S. are now higher than international prices. Push-back will begin, but there’s a caveat: hedging.

My analysis of cheese exports is indicating that most of the orders placed last fall for delivery through the first half of this year are hedged at about $1.85. Many overseas buyers of our cheese are protected. They are not paying $2.20, $2.30 or $2.40.

As the chart details above, I expect we will see strong demand throughout 2014. Higher milk prices could be here for a while longer—certainly until milk production ramps up.

Jerry Dryer is the editor of Dairy & Food Market Analyst, You can contact him at

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