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  December 17, 2010

From Market Moos - by Sherry Bunting, Farmshine Dec. 2010

USDA released the November Milk Production report today (Dec. 17) showing the total milk output for all 50 states was up 2.7% above year ago and 1.7% greater than for November of 2008. The figures showed cow numbers were unchanged from the previous month and 30,000 more than a year ago with 24,000 added in Idaho. Arizona added 14,000 cows; Washington state added 13,000 cows; Kansas added 8000 cows; Oregon and Wisconsin added 7000 cows; Colorado and Michigan each added 6000 cows; California added 5000 cows; Vermont added 4000 cows; and Pennsylvania added 3,000 cows. States that lost cow numbers included: Iowa, Ohio, Illinois, Missouri, and those that are not listed in the top 23 major milk producing states.  

All in all, the pace of growth over year ago has slowed a bit and it's important to note that last year's production was below 2008, so this year's growth relative to 2008 is below 2%. Cow slaughter rates are rising in December to levels not seen since summer 2009. This could impact December's production totals.

In the 23 major milk producing states, average milk output per cow in November topped year ago by 2.3% at 56.5 lbs/cow/day.

As has been the pattern in recent months, November's milk production was stagnant in Wisconsin and Minnesota, while Michigan grew more than 3%. Southwestern states' production averaged 5.5% higher than year ago, with Texas (up 2.8%) topping Minnesota (down 1.5%) for the number 6 position. California's production grew 4.5% compared with a year ago while Colorado, Arizona, Idaho, Kansas, Oregon and Washington were up 6 to 9%.

Pennsylvania added 3000 cows and more production per cow for total milk output up 3.2%. New York's production was up 4.6% on the same number of cows as a year ago. Vermont charted a 3.6% increase on 4000 more cows. Full Report

World Markets

More than any other factor (including currency values), the driver of U.S. dairy exports is: Who else has product in the world? And who is buying and what are they buying? The U.S. is, after all, not a preferred provider due to U.S. dairy pricing policies and the lack of incentive to produce milk powders that have a higher degree of consistency to meet buyer demands.

Case-in-point: Whole Milk Powder (WMP) and Skim Milk Powder (SMP) versus Nonfat Dry Milk (NDM).

This year, a major dynamic in the world powder market has been the unprecedented level of WMP New Zealand is making and China is buying.

So now the question is: Will New Zealand’s strong exports be thwarted, once again, by drought in its largest milk producing province: The North Island Waikato.

Over a month ago, I spoke with a fellow there who shared his concern about dry weather at a time when they are trying to make all the milk they can with such a good payout this year.

On December 1, reports out of New Zealand indicated the Waikato region is heading for very dry conditions; rain this week may have come too late. The jury is out on how Kiwi production will fair.

Meanwhile, WMP prices on Fonterra’s Global Dairy Trade (gDT) Wednesday, Dec. 15 contined to surge past the Dec. 1 advance.

The gDT price for Whole Milk Powder (WMP) in the 34th biweekly international internet auction on Wednesday (Dec. 15) was up 2.6% above Dec. 1 at $1.64/lb. Skim Milk Powder (SMP) was up 2.5% at $1.42/lb and anhydrous milkfat, rose 0.7% to roughly $2.44/lb. 

June-August contracts continued to advance after surging 5.3% higher on Dec. 1.

On Nov. 29, Statistics New Zealand (SNZ) pegged the country’s milk powder, butter and cheese exports up by $418 million, or 62%, from year ago. This was driven by the unprecedented $242 million rise in sales of unsweetened WMP to China, with both the price and the quantities being higher.

New Zealand’s brisk production and sales of WMP has contributed to low worldwide stocks of butter and  an ebb in cheese production.

New Zealand milk production through September ran 1.5% above last year, but previous forecasts had expected a 3% increase.

The big question for international market observers (and New Zealand dairy farmers) is: How long will China continue the large purchases of WMP? A slow down in the Asian economies could curtail this aggressive movement of powder at strong prices, but the 1.6% rise in the Dec. 1 gDT auction index seems to indicate otherwise.

In contrast, Europe still has SMP intervention stocks in inventory, and USDA Dairy Market News reports the EU’s fall production totals were heavier than usual, with September’s production up 4.5% above year ago. Cumulative production for the first nine months of 2010 is up just about 1% over 2009.

Global dairy trade will go on, with or without U.S. involvement in the production of desired commodities and ingredients.

The question often asked is: Why export if it is not profitable?

Then again: What’s more likely to be a sustainable course of action for U.S. dairy producers... Making inconsistent NDM that often fails to meet world specifications for spores and nitrates and is stockpiled and thus depresses U.S. farm gate milk prices until another supplier in the world runs out of product and comes calling on the U.S.? Or making a mix of more consistent quality and types of milk powders (WMP, SMP) and selling them at the higher world price?


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