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 April
17, 2000
Over the past 10 days wholesale prices of dairy products
declined. On April 17, the CME prices for both 40 pound cheddar blocks and
cheddar barrels fell below support. The support price for 40 pound blocks is $1.10 per pound, and the
CME price was $1.0975 per pound. The support price on barrels is $1.07 and the CME barrel price was $1.06 per
pound. Wholesale cheese prices can fall below support because it costs about 2 cents per pound to package for and grade for
government purchases. CME Grade A butter prices, which averaged $0.9245 per pound for March, have been bouncing
around. Butter prices reached $1.11 per pound the third week of March, but have been declining since then, declining $0.0625
per pound alone the week of April 10th. As of April 17, CME butter prices were $1.03 per pound, still well above the $0.65
per pound support price.
These weak dairy product markets are keeping farm level milk
prices at levels not experienced since 1978. Both the February and March Class III prices were $9.54 per
hundredweight. With further declines in cheese prices the April Class III price
could be even lower. The April Class III futures settled at $9.44 on April 17th. At this time it does not look like the Class III price
will reach $11.00 until July and may only peak in the mid-$12 range in October.
The weak cheese and butter markets are due to the relatively
strong milk production. March milk production statistics show production up 3.8% from a year ago for the 20 reporting states.
Estimates for the U.S. show production up 3.4%. There is no sign that milk cow numbers are declining. Thus far this year the
number of milk cows increased in January, February and March. Compared to a year ago, March cow numbers for the 20 states
were up 0.7% and were estimated to be up 0.5% for the U.S. Milk production per cow also
remains good, up 3.1% for the 20 states and estimated to be up 2.9% for the U.S. Despite lower
milk prices relatively cheap feed has maintained a favorable milk-feed price ratio of 2.95 for February, down from 3.1 for January
and 3.67 a year ago. But a ratio above 2.5 is still favorable for milk production.
Milk cow numbers for southwest and western states are all
higher than a year ago, except for Washington where cow numbers are 1.2% lower. The combined states of California,
Idaho, Washington, Arizona, and New Mexico had 84,000 more cows than a year ago, an increase of 3.5%. More milk
cows along with more milk per cow resulted in milk production increases of 12.7% for Idaho, 11.5% for New Mexico, 4.5% for California and 3.2% for Arizona. Even Texas, which had
been experiencing a decline in cow numbers for the past two years, had 2.3% more cows and a 3.2% increase in total milk
production. Cow numbers were unchanged for New York, up 0.7% for Pennsylvania, but down 1.2% for Vermont. With good
production per cow, milk production was up 2.7% in New York, 4.2% in Pennsylvania, and 4.3% in Vermont. In the
Upper Midwest, however, cow numbers are lower. Cow numbers were down 0.9% for both Wisconsin and Minnesota
and down 1.4% for Iowa. But this was more than offset with increases in milk per cow resulting in increases in total milk
production of 1.3% for Minnesota, 1.8% for Wisconsin, and 3.0% for Iowa. Milk production was not up in the Southeast,
but milk production still far exceeds fluid milk needs in Florida where excess production needs to seek a manufacturing market
outside the state.
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Despite lower milk prices relatively cheap feed has maintained a
favorable milk-feed price ratio of 2.95 for February, down from 3.1
for January and 3.67 a year ago. |
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The production increase is greater than commercial sales. A
strong economy has kept commercial sales relatively strong, but less than production increases. Last year commercial sales of all
dairy products were up 3.1%, with sales of individual dairy products being up 7.4% for American cheese, 4.8% for other
cheeses, 5.6% for butter and 0.7% for beverage milk. Sales are expected to stay relatively strong. Retail prices are declining and
there are reports of increased promotional activities for cheese.
But, increase in milk production has meant heavy production of
dairy products. Compared to a year ago, February production of American cheese was up 7.2%, total cheese up 6.6%, butter
up 16.4% and nonfat dry milk for human use up 14.5%. Depressed cheese prices has channeled some additional milk
into butter and milk powder production. This takes some pressure off of cheese prices. But with cheese at or below
support, the CCC has bought cheese under the support program. CCC purchases of cheese during the current fiscal
year (beginning Oct 1,1999) totaled 3,089,222 pounds, compared to none during the same period a year ago. With milk
production very strong and with CCC purchases, there is little need for aggressive buying of cheese by wholesalers to build
inventories for future sales. This is an opposite situation from what existed a year ago.
Increased production of cheese has built cheese stocks. The
report for end of March stocks will be released on April 20th. End of February stocks compared to a year ago showed
Natural American cheese stocks at 515.8 million pound, 11.1% higher, and stocks of all cheese at 709.4 million pounds, 11.6%
higher. Surprisingly, butter stocks were 92.4 million pounds, a decrease of 2.7%, but up 26.8% from end of January stocks.
In summary, farm level milk prices will continue to be depressed,
at least for the next few months. Prices will not show any real rally unless milk production slows. Prices will only increase more
than a normal seasonal increase if weather turns unfavorable for good milk production this summer and fall. Concerns for a
drought this summer still exist. But a drought may not impact milk production significantly until higher feed costs and shortages
of forages are realized during the winter of 2001. But if summer weather becomes very hot and humid, then milk production
could be depressed and milk prices could strengthen some.
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