U.S. milk output expected to remain robust into new year

posted Nov. 28, 2016 10:56 a.m. (CDT)
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by / Lee Mielke

October milk production in the top 23 producing states totaled 16.5 billion pounds, up a bearish 2.7 percent from October 2015, according to U.S. Department of Agriculture’s preliminary data. It was the 33rd consecutive month that output was above that of a year ago. The 50-state total, at 17.6 billion pounds, was up 2.5 percent. Revisions lowered the original Sept. 23 state estimate by 6 million pounds, now put at 16 billion pounds, up 2.3 percent from a year ago.

October cow numbers in the 23 states totaled 8.67 million head, down 2,000 from September but 31,000 more than a year ago. Output per cow averaged 1,903 pounds, up 43 pounds from a year ago thanks to mild weather conditions, and is the highest October output since the series began in 2003.

California topped year-ago output for the first time in 23 months, up 1.8 percent despite a drop of 11,000 cows. Output per cow made the difference, up 45 pounds. Wisconsin was up 2.2 percent on a 45-pound gain per cow, but cow numbers were down 2,000 head. Idaho was up 4 percent thanks to a 40-pound gain per cow and 12,000 more cows.

HighGround Dairy asked a pertinent question in its milk production analysis: If U.S. milk production is up 2.5 percent, why is the Chicago Mercantile Exchange block cheese price at its annual high and butter above $2 per pound?

Their answer: “Strong fourth-quarter domestic demand and lower prices in September and October likely generated some export business, which has taken capacity away from CME-eligible product.”

“U.S. milk output remains robust and should continue this way through at least early-2017,” HGD says. “Supply will likely not be the culprit for a bull market in 2017. But strong domestic demand for non-Cheddar cheese and butter, along with the need for U.S. product overseas, could keep prices higher than our typical fundamental instruments would suggest.”

Looking globally, HGD reports that “EU milk production has fallen against the prior year for four consecutive months (June-September) with expectations for weaker productivity into the end of the year and first-quarter 2017. The Milk Production Reduction Scheme commenced in October and could keep a limit on potential upside,” according to HGD.

The Daily Dairy Report’s Sarina Sharp echoed some of that sentiment in the Nov. 18 Milk Producers Council newsletter. Sharp writes: “European milk output likely continued to contract last month. In addition to sustained financial pressures, producers were incentivized to tap the brakes to collect bonuses from the European Commission’s Milk Production Reduction Scheme, which took effect in October and continues through the end of the year. However, the significant rally in European dairy product prices may be encouraging producers to step cautiously on the gas. Fortunately, this metaphor is imperfect. A dairy is not a car, and it takes dairy producers time to shift gears. In the near term, contractionary momentum is likely to prevail in Europe.”

There are many in this country that have long called for supply management instead of programs like the Milk Income Loss Contract or Margin Protection Program. But dairy’s chief lobbyist organization, the National Milk Producers Federation, is not likely to make another attempt to go down that road any time soon and yet, one has to wonder how the Trump administration would view it.

The federal order benchmark Class III futures market portends better days ahead. The November contract settled the day before Thanksgiving at $16.74 per hundredweight. December was at $16.86, January 2017 at $16.21, February at $16.15, and March was at $16.18. The peak for 2017 was $17.03 per hundredweight in September.

Finally, a warning shot from abroad: FC Stone reports that an agreement has been made in The Netherlands regarding a series of measures intended to bring Dutch phosphate production in line with European regulations. The Dutch agricultural phosphate limit is 172.9 million kg, and Dutch farmers have been in breach of this limit for the last three years.

Long story short, a host of measures have been agreed to reduce the phosphate level and includes a reduction of dairy herd numbers whereby farmers will be compensated for reducing the number of dairy cows on their farms in 2017. Secondly, farmers will be penalized who produce more milk than a predetermined reference quantity, with the level of penalization linked to the reduction in herd numbers. Thirdly, feed compounders have agreed to lower the levels of phosphorus in compound animal feeds. I ask you: What are the chances we see this kind of thinking happen to U.S. agriculture?

Lee Mielke can be reached at lkmielke@juno.com.

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