Milk Production Keeps Up with Demand

Published on: 11:29AM Nov 25, 2013

The U.S. has quality dairy products available for purchase, and the world is coming to our door.

Dairy exports have increased significantly from last year, with the value of dairy exports to China alone up 62% for the first nine months of this year compared to last year. My previous article discussed the U.S. export potential of dairy products to China, but the Asian nation came back in the news last week as they consider easing the one-child policy that has been in place for years. This caused a ripple of excitement throughout the dairy industry as it could increase exports substantially.

The U.S. is not the only country excited about this. New Zealand and Australia are hoping for increased business as well. Australia has been the larger supplier of dairy products to China, but there is no double the U.S. will gain some of this market share. After all, the value and amount of dairy products we ship to China has already increased significantly, and that will continue.

Exports in general have increased substantially for most dairy products so far this year. Cheese and curd exports in September were up 40.4% over last year, reaching 25,782.5 metric tons, and year-to-date exports are up 14.1% over the same period last year. Whey exports in September increased 6.6% to total 42,498.3mt. Butter exports have improved dramatically over last year, with the amount exported in September up 493.2%, reaching 11,335.7mt with year-to-date exports up 63.8%. Nonfat dry milk exports increased 38.6% from last year to 46,618mt, an increase of 18.5% so far this year. We have quality dairy products available for purchase, and the world is coming to our door due to U.S. prices being comparable to world prices.

Milk production so far, it appears, is keeping pace with both domestic and international demand. The October "Cold Storage" report showed American cheese stocks are still 3% above last year. Other cheese stocks rose 4% with total cheese stocks up 3%, while Swiss cheese stocks declined 8% from last year. Butter stocks declined substantially from September with inventory at 173.8 million pounds, down 59.2 million pounds from last month, but up 20% from last year.

Improved exports and domestic demand have yet to reduce supply below last year and, with two months of the year remaining, it may be difficult for this to take place. The upside is that we are improving milk production to keep up with demand and to better positions ourselves as supplier for the world market. International buyers want a reliable source for dairy products, and we are rising to the challenge.

For those who will need to purchase corn, now is the time to step up and purchase call options for feed needs. Purchase March call options one strike above the futures price for about 13 cents. Do the same for May, but increase the premium to be paid to about 18 cents. In July, purchase $4.70 call options for 20 cents. Futures may exhibit a traditional post harvest rally. Lower price has been improving export sales and with it could come stronger prices. However, there is plenty of supply available, but protection of feed prices needs to be done.

Upcoming reports:

- Agricultural Price report on November 27
- GDT auction on December 3
- October Dairy Products report on December 4
- World Agricultural Supply and Demand report on December 10

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

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