Higher Milk Production, Larger Herd Size Create Bearish Outlook
Published: Friday, November 27, 2020
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
Milk is flowing profusely on U.S. farms. Preliminary data in the USDA's October Milk Production report has output at 18.56 billion pounds, up 2.3 percent from October 2019, with output in the top 24 producing states at 17.7 billion pounds, up 2.5 percent.
Revisions lowered the September 50-state and 24-state totals 5 million pounds, putting the 50 states at 18 billion pounds, still up 2.3 percent from September
October cow numbers totaled 9.39 million head in the 50 states, up an eye catching 14,000 from September and 43,000 above a year ago. The September total was revised up 10,000 head. October's output per cow averaged 1,977 pounds, up 37 pounds from a year ago, or 1.9 percent.
Most analysts view the report as bearish to the market though we were warned, according to HighGround Dairy's Lucas Fuess. Speaking in the Nov. 23 'Dairy Radio Now' broadcast, Fuess pointed to the reduced weekly slaughter rates we've been seeing, all indicative of a "sharply higher dairy herd size."
He said the report is "concerning" because October and November are characteristically the lowest milk production months of the year. He warned that milk will rise seasonally through the spring flush and we could see an extremely burdensome and bearish amount of milk produced in most regions, resulting in milk dumping and growing inventories of product, which will limit upsides on milk prices in 2021. And, it remains to be seen if exports can absorb that extra milk.
Dairy cow culling crept higher in October, according to the latest Livestock Slaughter report, but was below a year ago, likely due to the high milk prices. An estimated 258,900 head were sent to slaughter under federal inspection, up 8,500 head, or 3.4 percent, from September, but 27,200, or 9.5 percent, below October 2019. A total of 2.56 million head have been culled in the first 10 months of 2020, down 142,100 head or 5.3 percent from the same period in 2019.
In the week ending Nov. 11, 57,800 dairy cows were sent to slaughter, same as the week before but 4,900 head, or 7.8 percent, below that week a year ago.
Last Tuesday's Global Dairy Trade (GDT) auction, Event number 272, reversed gears and saw its weighted average head up 1.8 percent, after falling 2 percent on Nov. 3.
Anhydrous milkfat led the gains, up 4.1 percent, after dropping 2.6 percent in the last event. Butter inched .4 percent higher, following a 3.9 percent jump. Skim milk powder was up 2.5 percent, following a 4.4 percent drop, and whole milk power was up 1.8 percent, after falling 2 percent last time.
Lactose led the losses, plunging 18.8 percent, after not trading last time, and GDT Cheddar cheese dropped 3.5 percent, after slipping .8 percent last time.
StoneX Group equated the GDT 80 percent butterfat butter price to $1.6984 per pound U.S., up fractionally from the last event. CME butter closed last Friday at $1.3450. GDT Cheddar equated to $1.6514 per pound, down 6.6 cents, and compares to last Friday's CME block Cheddar at $1.6450. GDT skim milk powder averaged $1.2696 per pound, up from $1.2348, and whole milk powder averaged $1.3774, up from $1.3539. CME Grade A nonfat closed last Friday at $1.0850 per pound.
CME block Cheddar dropped to $1.5975 per pound by last Thursday, lowest since Aug. 11, but regained 4.75 cents last Friday, first gain since Oct. 31, closing at $1.6450, down 27.25 cents on the week and 19.75 cents below a year ago.
The barrels plunged 21 cents Monday to $1.40, lowest since August 24, but pushed higher Friday to $1.4225, 18.75 cents lower on the week, 76.25 cents below a year ago, and 22.25 cents below the blocks. Seven cars of block sold and 13 of barrel.
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