Market Watch Diary Troubling times

March 5, 2009 06:00 PM
Alan Levitt
By now you've grown weary of reading grim news about the dairy markets. But the news keeps coming. Here are a few items that have caught my eye this month:

The dairy crash of 2009 will be painful for everyone, but I believe it will be particularly tough on smaller producers, accelerating the trend toward larger herds. Almost one-third of the milk in this country came from herds of 2,000 cows or more last year, according to just-released numbers from USDA. That's double the volume produced by megaherds in 2002. Just 54% came from herds of less than 1,000 cows. Six years ago, nearly three-quarters of our milk came from herds of less than 1,000.

Mozzarella production was down 3% in 2008, a staggering drop considering production had increased 14 years in a row, by an average of 3.8% annually. The decline is attributed to pizzerias cutting back on mozzarella usage to counter rising costs, according to Connie Tipton, CEO of the International Dairy Foods Association. Pizza topping has been the top-growing outlet for U.S. milk production over the last quarter-century. We'll need to get some of that business back to firm up the cheese market.

With the collapse of world markets, the U.S. Dairy Export Council forecasts exports of milk powder to plummet this year. Not coincidentally, USDA projects it will buy 575 million pounds of milk powder in 2009, a pace rivaling the volumes purchased in 2000 to 2003. We'll need to figure out a way to dispose of all that powder before we'll see stronger milk prices again. California, where more of the milk price is based on the price of nonfat dry milk, will suffer the most.

McDonald's reported a same-store sales increase of 5% in the fourth quarter of 2008, supporting the contention that consumers are "trading down” to fast-food chains. However, the gains are attributed to new coffee drinks, breakfast items and chicken sandwiches, not necessarily cheeseburgers.

As always, Mother Nature has the upper hand. In mid-February, California finally got a healthy down-pour of rain and snow, but it's still too early to call off the drought watch, now in its third year. January was particularly dry, and reservoirs and snowpack moisture levels were still well below normal. Water allocation and hay shortages could be an issue this summer, which, coupled with very low milk prices, will put tremendous stress on California dairy producers.

Bonus content:

USDA''s farm numbers and livestock operations report

National Oceanic and Atmospheric Adminstration''s Drought Monitor

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