Posted: Wednesday, May 23, 2012 8:50 AM
By CAROL RYAN DUMAS
U.S. milk production rose again in April, up 3.3 percent from April 2011, and is up 4.4 percent in the first quarter of 2012. Milk production is also increasing globally.
Worldwide, milk production has been much higher than one year ago for the past several months. There's been double-digit increases in the Southern Hemisphere and strong growth in the U.S. and Europe, said Jerry Dryer, editor, Dairy & Food Market Analyst and chief market analyst for Rice Dairy.
"Record or near-record high milk prices around the globe last year helped boost cow numbers and production per cow in most regions. Layer on nearly ideal weather and the milk production response has been huge," he said.
The laws of supply and demand seemed to have hit the global dairy auction squarely last week, with the weighted average price of products plunging 10 cents a pound, said John Kaczor, market analyst with California Milk Producers Council.
That 10 cents was the drop from the auction held two weeks ago and was also nearly 83 cents lower than the winning price at the auction held a year ago, he said.
Auction prices last year were increasing June through August, held steady and started retreating in November, falling precipitously since January. May's prices were 38 percent below May of 2011.
"June will be a similar size reduction," he said.
The losses are somewhat understated because high-value products, such as cheese and milk protein concentrate, were included in the auction this year and were not last year.
"All other things being equal, it should be a higher price," he said.
The downward trajectory in prices represented a 6.4 percent drop from the last auction. Several prices put in lows not seen since August 2009 and further downward price pressure is expected, Jerry Dryer said in his May 18 Dairy Market Analyst weekly newsletter.
Anyhdrous milk fat was down more than 14 percent, skim milk powder was down 11.9 percent and whole milk powder was down 9.9 percent. And only 147 of the qualified 635 bidders participated, a clear signal that buyers are in a wait-and-see mode, he said.
It's hard to say whether U.S. prices will follow plunging prices at the auction. The auction prices seem to be significantly lower than international prices reported by USDA's Dairy Market News, Kaczor said.
In addition, the auction prices might not be representative because they don't take into consideration tariffs and transportation costs. But they are important to watch, if not as an indicator of actual values, as a barometer to gauge which way markets are going, he said.
"The auction is considered a significant phenomenon, he said.
It provides an objective set of numbers on prices and volumes and represent a significant volumes being traded at a fair and open auction, he said.
Bill Van Dam, CEO of the Alliance of Western Milk Producers, said the U.S. industry needs to pay attention to the numbers, because a huge percentage of the dairy powder made in the U.S. is sold into the markets the auction supplies.
The more U.S. product sold into those markets, the more sensitive U.S. prices are to world prices, he said in his May 18 update.
U.S. dry whey exports represent 46 of U.S. dry whey production. Whey protein concentrate exports represent 43 percent of production, and nonfat dry milk and skim milk powder represent 43 percent.
Area April 2012 April 2011 %chng.
Calif. 3,628 3,519 5.3
Idaho 1,108 1,077 3.1
Ore. 213 206 3.4
Wash. 530 509 4.1
U.S 15.983 15,475 3.3
Area April 2012 April 2011
Calif. 1,787 1,764
Idaho 577 576
Ore. 123 119
Wash. 263 256
U.S. 8,525 8,431
Milk per cow
Area April 2012 April 2011
Calif. 2,030 1,995
Idaho 1,920 1,870
Ore. 1,730 1,730
Wash. 2,015 1,990
U.S. 1,875 1,835
Product May 18 chng from previous week
dollars per pound
Block 1.50 NC
Barrel 1.46 + 1
Butter 1.35 +3.50
NDM(Grade A) 1.125 +0.25
Class April chng from previous month
Dollars per hundredweight
Class 1 (federal orders) 15.66 -0.13
Calif. Class 1
Northern 16.81 -0.13
Southern 17.08 -0.13
Class II 16.20 -0.39
Class III 15.72 NC
Calif. 4b 13.43 -0.24
Class IV 14.80 -0.55
Calif. 4a 14.72 -0.61
SOURCE: Dairy Market Analyst