Milk product prices seen mostly weaker, milk supply remains ample

by Ron Sterk
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WASHINGTON — The U.S. Department of Agriculture in its July World Agricultural Supply and Demand Estimates tweaked milk and select dairy product production and price projections as herd liquidation appeared slower than earlier forecast.

"The milk production forecast is raised fractionally for 2009 as the reduction in cow numbers is slightly slower than expected," the department said in its latest WASDE.

Milk production was projected at 187.6 billion lbs in 2009, up 100 million lbs from the June forecast but still down 2.4 billion lbs, or 1.3%, from 190 billion lbs in 2008. Projected 2010 milk output was unchanged from June at 186.4 billion lbs.

As a result, the average price paid to farmers for all types of milk was projected to fall in a range from $11.85@12.15 a cwt in 2009, down 10@20c from the June projection and compared with $18.29 in 2008. The price for 2010 was projected to average between $14.85@15.85 a cwt, down 25c from June.

In its June Livestock Slaughter report, the U.S.D.A. said 212,000 dairy cows were slaughtered in May, down 3,000 head from April but 17,000 more than in May 2008. For the January-May period dairy cow slaughter was up 110,000 head, or 10%, from the same period last year.

Cooperatives Working Together (C.W.T.) said July 10 it would conduct a second herd "retirement" in 2009 and shortened the bidding period to two weeks in an effort to reduce milk production more quickly. C.W.T. earlier in July said it had completed auditing the removal this spring of 101,040 cows with annual milk output of about 1.96 billion lbs.

"Carrying out a second herd retirement right on the heels of the largest-ever herd retirement should give us a double-barreled attack on milk production in a very short period of time, resulting in a farm level price recovery several months sooner than would otherwise occur," said Jerry Kozak, president and chief executive officer of the National Milk Producers Federation, which oversees the voluntary and privately funded C.W.T.

The bulk of the June herd retirement, 81,366 cows, or 80% of the total, occurred in the West and Southwest regions of the United States. The West especially has been flush with milk this year and has been the only region where producers were selling nonfat dried milk (N.D.F.) to the Commodity Credit Corp. of the U.S.D.A. As of July 13 the C.C.C. had purchased 273,552,943 lbs of N.D.M. in the West since Oct. 1, 2008, at the 80c-a-lb support price.

Through the first five months of 2009, milk production in the 23 largest producing states totaled 15,483 million lbs, down 156 million lbs, or 0.2%, from the same period in 2008, according to the June U.S.D.A. Milk Production report. Production was slightly above year-ago levels for every month of 2009 except February, which contained an additional day in 2008.

As a result of the slower-than-expected reduction in milk supply, the U.S.D.A. projected larger supplies and lower prices compared with June projections for cheese, butter and N.D.M. in both 2009 and 2010.

Cheese prices were forecast to average between $1.21@1.24 a lb in 2009, down 2½@3½c from the June projection and compared with $1.89½ in 2008. Prices in 2010 were projected to range from $1.53@1.63 a lb, down 5c from June.

Butter prices in 2009 were forecast to fall in a range of $1.17½@1.23½ a lb, down 1@2c from June and compared with $1.43½ in 2008. The range for 2010 was projected at $1.43½@1.56½ a lb, down ½c from June.

N.D.M. values in July were projected to average between 82½@85½c a lb in 2009, down 1@2c from the June projection and about 30% below the 2008 average of $1.22½. Prices for 2010 were projected at $0.99@1.06 a lb, down 1c from the June projection.

The lone product tracked in the WASDE expected to show price strength this year and next was dry whey. The U.S.D.A. projected the average price to fall in a range of 24@26c a lb this year, up 2c from its June projection and about even with the 2008 average of 25c. The projected price range for 2010 was raised 2c from June to 28@31c a lb.

Unlike N.D.M., dry whey production has been below year-ago levels every month this year, with January-May cumulative outturn down 6% from the same period a year ago, according to the latest U.S.D.A. Dairy Products report. Production of N.D.M. was up 10% for the period, and was above year-ago levels every month except March.

Dry whey prices have risen steadily the past five months, doubling since mid-February and ranging from 28@34c a lb last week, according to Food Business News and U.S.D.A. pricing data. Prices for lactose, 34% whey protein concentrate and buttermilk powder also have posted strong gains this year (30% to 80%), compared with N.D.M., which has been steady to up only slightly.

This article can also be found in the digital edition of Food Business News, July 21, 2009, starting on Page 41. Click here to search that archive.

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