The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
July milk production was not down as much as expected. The Agriculture Department's preliminary estimate is 15.52 billion pounds in the top 23 states, virtually unchanged from June but up .8 percent from July 2011. The 50-state total, at 16.6 billion, was up .7 percent. Revisions added 2 million pounds to the June 23-state estimate, now put at 15.5 billion, 1.1 percent above a year ago.
July cow numbers, at 8.5 million head, were down 7,000 from May but 41,000 more than a year ago. Output per cow averaged 1,826 pounds, up 6 pounds from a year ago.
California production was down 1 percent, despite a 13,000-cow increase but output per cow was down 35 pounds. Wisconsin was up 4.4 percent on a surprising 65-pound gain per cow and 7,000 more cows. Idaho saw a half percent increase on a 20-pound gain per cow while cow numbers were off 3,000.
New York was up 1.9 percent, thanks to a 35-pound gain per cow. Cow numbers were unchanged. Pennsylvania was down 1.5 percent due to a 10-pound loss per cow and 5,000 fewer cows. Minnesota was up 1.1 percent on a 25-pound gain per cow, but cow numbers were down 2,000 head.
Michigan production was up 4.1 percent on 10,000 more cows and a 25-pound gain per cow.
USDA's Livestock Slaughter report estimated 239,000 culled dairy cows were slaughtered under federal inspection in July, up 9,800 from June and 31,900 more than July 2011. Through the first seven months of 2012, cull cow slaughter totaled 1.762 million, up 97,600 from the same period in 2011.
Daily Dairy Report (DDR) analyst Mary Ledman reported in her web site's Daily Dairy Discussion that many analysts expected July output would show a decline. Year to date, the 50-state output is up 2.7 percent, according to Ledman. However, she pointed out that cow numbers continue to decline and while the June count was lowered, July numbers were not as low as some expected.
Ledman blamed the contraction on margins and lack of profitability rather than drought and heat impacting cows, citing Wisconsin as an example. A year ago, Wisconsin had a lot of heat and humidity, but this year there was more heat than humidity, she said, but "dairy producers have done a good job in mitigating the heat conditions." She also pointed to the increases in Michigan and Minnesota.
Turning to the West, she pointed to declines in California, New Mexico and Texas and said producers who are buying feed are really struggling, plus milk prices in those regions and states tend to be less than those east of the Rockies.
The Alliance of Western Milk Producer's Bill VanDam wrote in his Aug. 17 newsletter that "the pattern the last four months is remarkable as the state moved from near record gains to a negative 1 percent in July." He said, "The lack of plant capacity in the state which triggered production controls by the cooperatives and others is one part. The drought-caused prospect of higher feed prices is a second factor. Low prices are gradually being replaced by better prices, which should encourage producers to return to normal production patterns."
He adds that MILC payments add as much as $1.74 per hundredweight to prices paid to Minnesota and Wisconsin producers on all their milk. By now, California producers are getting nothing because they have used up the annual 2.985-million-pound limit several months ago.
The cash market apparently didn't like what it saw in the Milk Production report. Block cheese reversed three weeks of gain, closing last Friday at $1.8525 per pound, down 1¾ cents on the week but 6¼ cents above a year ago when they tumbled 11 cents to $1.79. This is the first time the blocks have topped the year ago level since January. Barrel closed at $1.8025, down 3¼ cents on the week and 8 cents above a year ago. Eighteen cars of block traded hands on the week and 12 of barrel. The AMS-surveyed block price averaged $1.7552, across the U.S., up 3.8 cents, and the barrels averaged $1.7811, up 6.7 cents.
Dairy Product Prices
Cheese price increases have fueled interest in securing inventory before further price increases, according to USDA's Dairy Market News. Demand for Labor Day retail specials and filling the pipeline for school openings added to immediate interest. Hot weather continues to impact milk volumes available for processing and cheese plants are paying premiums in some cases to secure additional milk.
Spot butter moved higher for the ninth week in a row, closing Aug. 24 at $1.80 per pound, up three quarter-cents on the week but still 29¼ cents below a year ago. Nothing sold all week. The AMS butter averaged $1.7154, up 5.2 cents.
USDA reports that churning across the country is mixed. Overall butter demand is fair. Retail orders are stable as grocery shopping patterns are starting to pick up.
Cash Grade A nonfat dry milk hit $1.6650, up a penny and a half on the week. Extra Grade held at $1.6250. The AMS-surveyed powder price averaged $1.2575, up 1.1 cent, and dry whey averaged 53.99 cents, up a penny.
Dairy product sales, including butter, often realize a spurt in demand at this time of the season, according to USDA. On the other hand, food service orders are easing. As the Labor Day holiday approaches, which is often referred to as the unofficial end of the summer vacation season, food service orders for resort and vacation areas of the country adjust their buying patterns, often reflecting slower customer traffic through their operations.
The Agriculture Department announced the September Federal order Class I base milk price at $17.59 per hundredweight, up $1.04 from August but still $4.19 below September 2011, and equates to about $1.51 per gallon. That brings the 2012 Class I average to $16.50, down from $19.23 at this time a year ago and compares to $14.83 in 2010 and $10.95 in 2009.
The University of Wisconsin's Brian Gould does not anticipate an MILC payment to producers for the month or the foreseeable future, depending what Congress does, policywise.