DairyProfit Update for Dec. 20, 2012

Rabobank: Dairy demand growth slow, but shouldn't prevent price recovery

The slow recovery in international dairy prices that began in August continued through into the final quarter of 2012, but failed to gain much momentum, according to Rabobank’s latest dairy market report. However, Rabobank expects milk production growth in key export regions to continue to fall below prior levels in the first half of 2013. The market will inevitably tighten further if there is even a modest improvement in demand.

In the U.S., Rabobank expects milk supply growth to lag (-0.9%) year-ago levels in the first half of 2013. The collapse of U.S. dairy market premiums to the world market will bring lower milk prices in nearby months, imposing another reduction in profitability. Weaker supply – and some domestic market growth – will leave the U.S. with reduced supply for the world market in the first half of 2013 – with most of the reduction likely to come in powders.

With less new product to go around, and limited supply in storage, any increase in import requirements in the first half of 2013 will substantially tighten the market. That said, the softening of demand growth in deficit regions, and some stock accumulation at the buyer end, may ensure this process is now delayed until late in the first quarter of 2013, and prove less extreme than envisioned three months ago. However, a continued upward price trajectory seems all but inevitable, Rabobank concluded.

 

Cropp: December Dairy Situation and Outlook

Milk price are headed lower for December and perhaps for January of next year, driven by lower dairy product prices, particularly for cheese and butter, according to Bob Cropp, professor emeritus at the University of Wisconsin-Madison. 

Various factors may explain the cheese price decline, he said. More milk available for cheese production, as well as higher milk components, has increased total cheese production, particularly in the East and Midwest. 

Another factor for lower cheese prices was exports. While cheese exports were running higher than a year ago,

October exports were nearly a third lower from the peak in May. Finally, holiday orders have been filled, and it is not unusual for cheese prices to decline some in December. 

We can expect some price recovery by February, as cheese demand is usually relatively strong for the month, and cheese and butter buyers may need to refill their stocks. There is still the potential for higher prices by summer and fall., depending on the level of milk production. And the level of milk production will hinge heavily upon 2013 crop conditions and resulting feed prices.

It now looks like milk prices will average higher for 2013 than this year. But, there exists much uncertainty where milk prices will end up, particularly by summer and fall.

 

PMMB reduces over-order premium

The Pennsylvania Milk Marketing Board (PMMB) will reduce the Class I over-order premium price for milk for the six-month period beginning Jan. 1, 2013. The board decided to decrease the premium by 15¢/cwt., to $1.80 for the three-month period of January through March, and then increase the premium to $1.85/cwt. from April through June. 

Over-order producer premiums mandated by PMMB are assessed on fluid (Class I) milk produced, processed and sold entirely within Pennsylvania. PMMB continued the current fuel adjuster add-on to the producer premium, established under a different pricing order.  

Pennsylvania Farm Bureau (PFB) president Carl Shaffer opposed the reduction. Testimony and data offered by PFB during a PMMB hearing earlier this month showed financial conditions for Pennsylvania dairy farmers have not improved as farmers continue to face serious economic challenges. Production costs, such as feed concentrate and soybean meal, have increased substantially compared to previous years.

 

USDA issues final animal disease traceability rule

USDA’s Animal and Plant Health Inspection Service (APHIS) announced a final rule establishing general regulations for improving the traceability of U.S. livestock moving interstate.

Under the final rule, unless specifically exempted, livestock moved interstate would have to be officially identified and accompanied by an interstate certificate of veterinary inspection or other documentation, such as owner-shipper statements or brand certificates.

The final rule has several differences from a earlier proposal, including:

• Accepting the use of brands, tattoos and brand registration as official identification when accepted by the shipping and receiving states or tribes
• Permanently maintaining the use of backtags as an alternative to official eartags for cattle and bison moved directly to slaughter
• Accepting movement documentation other than an Interstate Certificate of Veterinary Inspection (ICVI) for all ages and classes of cattle when accepted by the shipping and receiving states or tribes
• Clarifying that all livestock moved interstate to a custom slaughter facility are exempt from the regulations

The notice is expected to be published in the December 28 Federal Register. Visit www.aphis.usda.gov/traceability.

 

MARKETS: Cheese up, but Class III futures lower

Today's market closing prices:

Butter: down 1.0¢, to $1.55/lb.

Cheddar blocks: up 2.0¢, to $1.74/lb.

Cheddar barrels: up 1.25¢, to $1.65/lb.

Grade A nonfat dry milk: unchanged, at $1.5575/lb.

Extra Grade nonfat dry milk: unchanged, at $1.56/lb.

Class III milk: -5¢ to -39¢ through September 2013. Based on current CME closing prices, the 2012 average is $17.44/cwt.; the 2013 average is $18.37/cwt.; and the 2014 average is $16.35/cwt.

 

Corn, soybean and meal futures lower

Corn: -6¢ to -10¢ through December 2013. The 2013 average is $6.64/bu.

Soybeans: -13¢ to -28¢ through November 2013. The 2013 average is $13.68/bu.

Soybean meal: -$3.40 to -$9.10/ton through December 2013. The 2013 average is $400.23/ton.