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Mielke Market Weekly: Milk production up from a year ago

U.S. milk production continues to top year ago levels but may be slowing. Preliminary data in this week's March Milk Production report shows output in the top 23 producing states at 16.9 billion pounds, up 1.1 percent from March 2014. The 50-state total, at 18.1 billion pounds, was up 1.2 percent from a year ago.

March cow numbers in the 23 states, at 8.62 million head, were down 4,000 head from February but 86,000 more than a year ago. The 50-State count, at 9.3 million head, is down 5,000 from February but 78,000 more than a year ago.

HighGround Dairy's Eric Meyer says; "While the US as a whole is still pumping out more milk, and a lot more in some states, overall growth has diminished and the milking herd is worth watching as it decreased versus the prior month for the first time since November 2013.

March output per cow in the 23 states averaged 1,959 pounds, up just 2 pounds from March 2014, and the highest production per cow for the month of March since the 23 State series began in 2003.

The January to March Quarter saw milk output total 51.9 billion pounds, up 1.7 percent from a year ago. Cow numbers, at 9.3 million head, were up 17,000 from the October to December 2014 Quarter and 88,000 more than a year ago.

Troubles remain in California where March milk output was down 2.9 percent, following a 3.5 percent decline last month. The Golden State saw a 60 pound drop per cow in March and 2,000 fewer cows milked. Wisconsin, on the other hand, was up 3.6 percent, thanks to a 60 pound gain per cow and 5,000 more cows. The Badger State was up 3.4 percent last month.

Idaho was up 1.3 percent despite a drop in output per cow of 10 pounds but an extra 10,000 cows made up the difference. New York was up 1.1 percent on a 15 pound per cow gain and 2,000 more cows. Pennsylvania was up 1.3 percent on 1,000 fewer cows but output per cow was up 5 pounds. Minnesota was up 4.4 percent, thanks to a nice 70 pound gain per cow and 1,000 more cows.

South Dakota recorded the biggest gain, up 9.6 percent, followed by Michigan, up 7 percent, thanks to a 25 pound gain per cow and 22,000 more cows. Next was Colorado, up 6.1 percent. The biggest loss was in New Mexico, down 3.9 percent, due to an 85 pound drop per cow, and then California. Texas was down 0.6 percent on a 45 pound drop per cow. Cow numbers were up 8,000 head. Washington State was up 1.1 percent despite a 30 pound drop per cow, but cow numbers were up 7,000 head.

Meanwhile; dairy cow culling picked up in March, according to USDA's Livestock Slaughter report which showed an estimated 260,700 dairy cows were slaughtered under Federal inspection in the month, up18,400 head from February and 15,000 head more, or 6.1 percent more than March 2014. The First Quarter saw 778,400 dairy cows make their way to hamburger heaven, up 25,900 head from the same period a year ago.

The heaviest culling again occurred in the West, which included Arizona, California, Idaho, Oregon, and Washington, followed by the Midwest, Illinois, Indiana, Michigan,, Minnesota, Ohio, and Wisconsin.

Preliminary data in the March Cold Storage report issued Wednesday shows butter stocks at 184.3 million pounds, up 6.9 million pounds or 4 percent from February but 7.5 million pounds or 4 percent below March 2014.

American type cheese, at 629.5 million pounds, was down 12.8 million pounds or 2 percent from February and 9.6 million pounds or 2 percent below a year ago. The total cheese inventory on March 31 stood at 1.06 billion pounds, virtually unchanged from February but 44.4 million pounds or 4 percent above a year ago.

Dairy traders had to weigh this week's Milk Production and Cold Storage reports in view of current demand. The cash Cheddar blocks ended the week at $1.61 per pound, highest level since December 22, 2014, up 3 1/2-cents on the week, ending two weeks of small declines, but still 60 cents below a year ago when they dropped 7 cents to $2.21. The barrels closed Friday at $1.62, down a half-cent on the week after reaching the highest level they've seen since December 1, 2014, ending four weeks of gain, and are 56 cents below a year ago and a penny above the blocks, a spread that normally averages 3-5 cents below the blocks. Seven cars of block traded hands this week at the CME and only one of barrel. The lagging NDPSR-surveyed U.S. average block price hit $1.5798, up 0.4 cent. The barrels averaged $1.6396, up 2.7 cents.

Barrel cheese has been "surprisingly tight in the Midwest," reports Dairy Market News (DMN), and has led to some manufacturers scheduling additional barrel production to take advantage of the inverted prices. Some Midwest cheese plants are receiving sufficiently increased milk volumes to reduce the need for surplus milk purchases for maintaining desired production levels. Spot milk is available at $2.00 under class, says DMN, and milk components are seasonally good, providing solid yields.

Milk production is increasing in the West and generating volumes such that any plant seeking milk can find it. This is keeping cheese plants mostly at capacity. With barrels tighter, some plants able to switch took advantage of inverted prices.

Cash butter had a good week, finishing at $1.83 per pound, up 2 1/4-cents on the week and the highest level since February 5, 2015 but still 8 cents below a year ago. Nothing sold all week. NDPSR butter averaged $1.7351, down 0.7 cent.

There's reason for strong butter prices. While butter demand is mixed, according to DMN, "most contacts report strong demand." Some manufacturers are saying sales are down as retail advertisements are down. Inventories are mixed. Some manufacturers are building inventories for future obligations and others are unable to as all production is meeting current commitments. Cream supplies are also mixed, with some manufacturers reporting that instead of selling extra cream, they are churning butter. Cream demand remains strong from western butter plants. Increasing milk flow in many areas has not generated enough cream to satisfy demand at some butter plants. Competing interest from ice cream manufacturers is also a factor, according to DMN.

Cash Grade A nonfat dry milk even saw a little strength this week, closing at 93 cents per pound, up a half-cent on the week but a whopping 92 3/4-cents below a year ago and the lowest spot level since August, 2009. Seven cars traded hands this week at the CME. NDPSR powder averaged 96.65 cents per pound, down 0.9 cent, and dry whey averaged 45.62 cents per pound, down 0.8 cents.

Cooperatives Working Together (CWT) accepted 11 requests for export assistance this week from Dairy Farmers of America, Michigan Milk Producers Association, Northwest Dairy Association (Darigold), and Tillamook County Creamery Association who have contracts to sell 1.993 million pounds of Cheddar, and Monterey Jack cheese and 1.332 million pounds of whole milk powder to customers in Asia, the Middle East, and Central America.

The product has been contracted for delivery through October 2015 and raised CWT's 2015 exports to 27.8 million pounds of cheese, 24.4 million pounds of butter, and 8.7 million pounds of whole milk powder to twenty two countries. The sales represent the equivalent of 868.1 million pounds of milk on a milkfat basis.

In dairy politics; the Milk Producers Council's Rob Vandenheuvel responded to charges made last week by California's dairy processors regarding their proposal in the debate over a Federal Milk Market Order in California. He talked with me about it in Friday's DairyLine and wrote about it in his April 17 newsletter.

"The Dairy Institute of California (DIC), on behalf of many of the State's milk processors, submitted a complete alternative proposal, with stark differences from the cooperative's proposal in key areas," he said. He focused on comments by the DIC in the opening paragraphs of their proposal. First, that the DIC concluded that "there are no significant disorderly marketing conditions that would warrant either a hearing, or after any hearing, the promulgation of a California Federal Milk Marketing Order." Second, "[The cooperatives'] failure to present any real evidence of disorderly marketing conditions is not surprising, given that no such evidence exists."

"Those are some pretty bold statements, to say the least," Vandenheuvel retorted. "We can have intellectual debates about the pros and cons of the various proposals, but it takes some real chutzpah to claim that California's producers don't even deserve the opportunity to present our case to USDA."

He then outlined what he says "the current California system provides California processors. First that California dairy farmers pay 100 percent of the cost of a transportation subsidy program that ensures that Class 1, 2 and 3 manufacturers get the milk they need, regardless of how far that milk must be hauled. So the plants that are built in urban areas are ensured a milk supply even as agriculture is forced out of the area.

Second, that the minimum price formulas result in raw milk prices that move up and down based on the value of dairy products moving up and down. In other words, it's like if a dairy farmer's feed costs automatically moved up and down based on the price of milk.

Third, included in the minimum price formulas are "make allowances" that are largely based on the cost of manufacturing the products included in the calculation of the formula. In other words, the formulas ensure that, regardless of whether milk prices are high or low, the price a manufacturer pays for their milk is low enough to provide opportunities for profit.

Fourthly, in every one of the five classes of milk, the California minimum price lags below Federal Order prices on average. "Our 4b price gets most of the attention," he said, "as the most egregious of the California discounts." "I gotta be honest," he concluded. "If I were in the manufacturer's shoes, I'd probably stick with the company line that there's no problem with the current system."

And while the Federal order debate goes on in California, the processor group, International Dairy Foods Association (IDFA), reports that "Consumer protection, taxpayer watchdog groups and small business trade associations joined national and state-based small business associations in weighing in on whether there is continued need for the depression era Federal Milk Marketing Order (FMMO) Program. Because they are designed to raise the price of milk, the FMMOs have a negative effect on the income and food benefits of federal program recipients and raise taxpayer costs of government feeding programs that include milk."

The groups responded to USDA's Agricultural Marketing Service (AMS) recent request for comment on the orders under the Regulatory Flexibility Act, which requires periodic review of existing regulations.

IDFA says the FMMO program, authorized by the Agricultural Marketing Agreement Act of 1937, was "designed to ensure a stable supply of fresh fluid milk for fluid processors and consumers. However, in today's modern economy, the FMMO program actually runs counter to this goal as higher beverage milk prices brought about by government pricing effectively function like a regressive tax imposed on consumers, disproportionately affecting fixed and lower income households which spend a higher share of their income on food in general and on milk in particular."

The National Milk Producers Federation (NMPF) also responded to the AMS request, stating that it "strongly believes the FMMO program provides numerous benefits to the many small entities which it regulates, both milk producers that are small entities and processors of dairy products that are small entities.

Accordingly, NMPF believes that no change to the program is needed for the purpose of reducing any significant economic impact of program rules upon a substantial number of small entities. " The Federation also addressed the issue in its current monthly web column: