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 July
17, 2000
The July milk production report was not good news for better milk prices. June milk production, although down seasonally from May, was still 2.6% higher than a year ago. This was a stronger increase than last month's report where May production was 2.2% higher than a year ago. Milk cow numbers have not begun to decline. Compared to June a year ago, there were 0.6% more milk cows. At 9.224 million head, this was the largest number of milk cows yet this year. Milk per cow was about normal with an increase of 2.0%. Weather was favorable, for the most part, during June. Only recently has hot weather shown any notable effects on production in Arizona and New Mexico.
June production, compared to a year ago, show production up 6.6% in California, 14.6% in Idaho, 11.5% in New Mexico, and 6.5% in Arizona. In the Upper Midwest, both Wisconsin and Minnesota had less milk, down 1.5% and 0.5% respectively. The decline was due to fewer milk cows, down 1.5% in Wisconsin and 1.8% in Minnesota; and no increase in milk per cow in
Wisconsin and only a 1.4% increase for Minnesota. In the Northeast, production was down 1.8% in New York due to 1.7% less cows and no increase in milk per cow, and up slightly in Pennsylvania, 0.4% due to 0.5% more cows and also no change in milk per cow. A few more cows and more milk per cow, however, increased Ohio's production 2.1%. Milk production remains better than a year ago in the South and Southeast. Production was up 2.0% in Florida, 2.8% in Missouri, and 2.3% in Kentucky. This improved milk production has not required spot shipments of Grade A milk from the Upper Midwest to meet fluid needs in the South and Southeast and therefore, more milk remains available for making manufactured dairy products in the Upper Midwest.
Not until milk production shows that it will slow more seasonally will milk prices show real strength. Cheese prices did show considerable improvement a few weeks ago, but have since fallen back. On the CME, 40 pound cheddar blocks were below support the end of May at $1.09 per pound (support $1.10). Barrels at $1.065 per pound were also below support (support $1.07). But prices increased and both 40 pound blocks and barrels reached $1.28 per
pound by June 30th. However, prices have fallen by July 17th back to $1.22 for blocks and $1.19 for barrels. Cheese stocks at 766.5 million pounds at the end of May were more than ample, up 3.4% from a year ago. Total cheese production during May was 8% higher than a year ago. However, states like California showed an increase in Cheddar Cheese production of 26% compared to an increase of just 2% for Wisconsin. Cheese buyers are working off older
cheese stocks bought at lower prices before aggressively buying new cheese. Butter stocks are also ample for current needs. End of May stocks were 137.2 million pounds, just 0.5% more than a year ago, but still a lot of butter for this time of the year. Like cheese,
butter prices have gone up and down. CME Grade AA butter was over $1.33 per pound in mid-May, but were just $1.15 per pound on July 17th. May butter production was up just 1.0% in May compared to a year ago.
Cheese and butter prices should start to increase once again. Warmer weather is lowering both butterfat and protein composition of milk reducing yields of dairy products. Milk production is also decreasing seasonally. How much will depend upon how hot and humid it will get over the next few weeks. There are reports that due to breeding problems last fall, there are a higher portion of late lactating cows and cows freshening this summer than
normal. If so, a smaller increase in milk per cow could start to show up. Spot shipments of Grade milk from the Upper Midwest to the South and Southeast should begin soon. How much will also depend upon the weather.
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Not until milk production shows
that it will slow more seasonally will milk prices show real strength. |
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The June Class III price was announced at $9.46, the fifth straight month of less than $10.00. Earlier, I predicted a July Class III price reaching $11.00. But with these butter and cheese prices it may only reach about $10.45. I also predicted a possible peak Class III price for September at $12.75. Right now a low $12.00 September price may be the reality. However, I am still optimistic for a September Class III of $12.50. The Class III milk futures are currently well below this. July 17th settle price shows September Class III at just $11.61.
About four weeks ago, September Class III milk futures hit $12.70. Dairy producers need to watch the market and when it does show some good improvement, perhaps take advantage of it by using dairy price risk management
tools.
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