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 May
16, 2000
The May 16th milk production report does not offer any promise of higher milk prices in the near term.
For the 20 reporting states, April milk production was 3.7% higher than a year ago. Milk per cow was up 2.8% and the number of milk cows was up 66,000 head, an increase of 0.9%. In fact, the nation's cow herd keeps on increasing. Despite milk prices at 1978 levels, milk cow numbers increased each month this year. From January to April milk cow numbers increased by 12,000 head. But this increase in cow numbers is not nationwide. The increase is in the West. Compared to April, milk cow numbers were up 51,000 head in California, 25,000 head in Idaho, 10,000 head in New Mexico, and 6,000 head in Arizona. This compares to decreases in cow numbers of 11,000 head in Wisconsin, and 5,000 head in Minnesota. Cow numbers were down 4,000 head in New York, no change in Pennsylvania and a 2,000 head increase in Ohio. Cow numbers are also lower in most of the South and Southeast with Kentucky down 1,000 head, Missouri 3,000 head and Florida 2,000 head.
Thus, the continued strong growth in milk production may be attributed to the West. Compared to a year ago, April milk production was up 11.9% in Idaho, 10.0% in New Mexico, 6.1% in California, 4.7% in Arizona but up just 1.5% in Washington and 1.7% in Texas. In the Northeast, milk production was up 0.8% in New York, 2.9% in Pennsylvania and 5.7% in Ohio. Milk per cow more than offset the decline in cow numbers resulting in increases in milk production of 0.7% for Minnesota and 0.9% for Wisconsin. The same held true for the South and Southeast netting increases in milk production of 8.7% for Kentucky, 1.5% for Missouri with no change for Florida.
More milk means more dairy products. While cheddar cheese production for March was down slightly, 0.1% from a year ago, the production of all cheese was up 2.6%. Surprisingly, butter production was down 1.0%, but the production of nonfat dry milk production was up 10.8%. Continued strong commercial disappearance has help to hold down stocks. But while March 31st butter stocks were down10.4% from a year ago, cheese stocks were 12.7% higher. Recent commercial disappearance data, December of last year through February of this year, show all dairy products up 4.6%, butter up 7.1%, American cheese up 6.3% and other cheeses up 8.5%. But nevertheless, cheese prices have weakened in response to strong increases in milk production. Wholesalers are not eager to buy a lot of cheese to put in inventory when milk production and in turn cheese production appear to be more than ample to fill their needs for the months ahead. In fact, 40 pound cheddar blocks have slipped below
support -- $1.10 per pound support price and CME blocks are at $1.0825 per pound. Cheddar barrels are at $1.0775, just above the $1.07 support price. With good butter sales and stocks lower, CME butter prices are at $1.1975, well above the $0.65 support price.
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Despite milk prices at 1978 levels, milk cow numbers increased each
month this year. From January to April milk cow numbers increased by
12,000 head. |
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The Class III price is for milk used for cheese. With these low cheese prices the Class III price has been below the $9.80 support price each month starting with February. The April Class III price was $9.41. With butter above support and a relatively high support price for nonfat dry milk, the advanced Class IV price (milk used for nonfat and dry whole milk and butter) has averaged $1.26 per hundredweight more than the advanced Class III price under federal milk marketing orders January through may of this year. Hence, according to federal order provisions, the higher of the advanced Class III or Class IV will be the mover of Class I and Class II milk. This has meant considerable better milk prices paid to dairy farmers in relatively high Class I markets, like those in the Southeast, than what would have existed under the previous mover, the BFP price.
It looks like the May Class III price will not show much change from the $9.41 April price. But with summer coming on and milk production declining seasonally in the Southeast followed by declines in the Midwest and Northeast, cheese prices should start to show some strength in June with further increases in butter prices. The June Class III price should be above $10.00 with the July Class III well over $11.00. But the milk production report has softened the dairy futures. The Class III futures settle prices are below $12.50 for September and October, and fall below $12.00 by December. But, dairy producers should watch for some rally above these prices, which could well occur if milk production slows more than what is now anticipated. If and when a price rally occurs, producers may well consider taking advantage of the price strength with a hedge, buying a PUT option or entering into a cash forward contract with their milk buyer.
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