(May 29, 2012) University of Wisconsin’s Robert Cropp discusses his latest dairy outlook.
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(December 27, 2011) While milk production in November increased 1.8 percent, cow numbers have declined the last two months. Robert Cropp, Professor Emeritus at the University of Wisconsin-Madison, reported on that this week in his latest Outlook Report.
(November 1, 2011) Robert Cropp, Professor Emeritus at the University of Wisonsin-Madison shares his recent outlook report in this podcast.
When the CME Cheese market took a dip in mid-July, some thought that it was the start of declining prices. That wasn’t the case as prices recovered higher than anticipated. Robert Cropp, Professor Emeritus at the University of Wisconsin, calls the current prices “unexpected.”
Last week’s stock report revealed that cheese was much improved from where it was and we still have a little more cheese than a year ago.
“This hot weather, no doubt, will knock milk production; it’s pretty widespread in many parts of the dairy area,” he said.
Cropp reported that cheese sales have been holding up surprisingly to this point.
“Prices are there it still seems a little questionable whether they will stay at that level, even though milk production is declining seasonally and soon we have to build stocks for the strong fall season, they still see a pretty high price and whether or not we’ll get some sales resistance.”
The CME spot cheese price remains over $2.00 a pound, which is good news for farm milk prices. Blocks were trading Monday at $2.11, and the barrels were at $2.07. The question is whether it can stay there?
Robert Cropp, Professor Emeritus at the University of Wisconsin-Madison, doesn’t think so. He reported on Tuesday’s DairyLine that we are in a seasonal decline in milk production, which is slowing down in key states like California, Wisconsin and Minnesota.
Cheddar cheese production has been running behind a year ago, but total cheese production is up. First quarter exports are up almost 90 percent from a year ago and demand is holding steady.
Stocks are adequate but not burdensome, so whether the Hilmar incident spiked cheese prices, Cropp believes the cheese price is going to come down from the current price of $2.12 per pound.
“I wouldn’t be surprised if it weakened some and then comes back this fall,” he said.
Barring a big drop, the June Class III milk price should pass $19.00, up from May’s Class III price of $16.52.
Along with the rise in the cash cheese market we are also seeing an increase in dry whey, running in the 50-55 cent per pound range, which is also supporting the higher Class III price.
Spot butter opened the week up a penny to $2.14 per pound. Cropp said he can see the butter price staying put for a while. That’s because butter stocks are almost a third lower than a year ago, and almost 40 percent lower than the five-year average. April exports were 100 percent higher than a year ago.
Cream supplies are going to be tight as fluid sales will be down with school out. “That leaves less cream from the fluid side and the ice cream guys, of course, will be demanding cream and we are in a seasonal decline,” he concluded.
Milk prices will show further weakness in May and be down considerably from the March peak, yet prices are much improved over a year ago
The May Class III price will be near $16.45/cwt., down about 45¢ from April and $3.00 less than March, but about $3.00 higher than a year ago.
The Class IV price continues to show strength, with May near $20.00/cwt., up about 30¢ from April and $4.70 higher than a year ago. The advanced Class IV price continues to be the mover of Class I.
The May Class I mover was announced at $19.75/cwt., $5.95 higher than a year ago. The U.S. all milk price will average near $18.50/cwt. for May, down about $1.20 from April and almost $2.00 less than the peak in March, but still about $3.50 higher than a year ago.
We could see some strengthening of milk prices beginning as early as June. The Class III price could well be above $17/cwt. and reach near $18/cwt. by September or October. The Class IV price is likely to stay close to $20/cwt. until fall, before declining to the low $19′s or high $18′s by year’s end. This price strength hinges on future milk production, domestic sales and continued strong dairy exports. While fluid milk sales continue to run more than 1% below a year ago, cheese and butter sales continue to run higher. Dairy exports have added strength to nonfat dry milk, cheese and butter prices. Compared to year ago, first quarter exports of nonfat dry milk/skim milk power were more than double; total cheese exports 86% higher; and butter exports almost double. On a total solids basis, about 13% of U.S. milk production was exported.
During May, butter and cheese prices on the CME have shown small decreases and increases from one trading session to another. Butter peaked at $2.095/lb. early May, fell to a low of $1.925/lb. on May 12, but as of May 18 it recovered to $2.07/lb. Cheddar barrels peaked at $1.66/lb. in early May, fell to $1.6425/lb. on May 13, but as of May 18 was $1.6625/lb.. The 40-lb. cheddar blocks peaked at $1.65/lb. in early Ma,y fell to $1.62/lb. on May 11, but returned to $1.6675/lb. as of May 18.
Butter production has picked up some from a year ago, with March production 12.4% higher. As a result, March 31 butter stocks were 4.2% higher than a month earlier, but still 26.3% below a year ago and 29.4% below the 5-year average for this date. March production of cheddar cheese was 6.1% lower than a year ago, with total cheese production 2.4% higher. With good domestic sales and strong exports, March stocks of American cheese declined 1.0% from a month earlier, and were just 2% higher than a year ago. Total cheese stocks declined just slightly from a month earlier and were still over 1 billion lbs., and 2.8% higher than a year ago.
So, with both favorable domestic sales and strong exports, the level of milk production will be a key to where milk prices will head this summer and fall. The growth in milk production was expected to slow with the high feed prices. Feed prices will remain high, with some relief when the new crop is harvested. Hay stocks are very tight in the West, with May 1 stocks 63% below a year ago in both California and Idaho, the lowest since 1999 and 2001 respectively. California and Idaho were paying 90% and 72% more for hay than a year ago, respectively. Hay stocks were also considerably lower than a year ago in the Northeast, but higher in the Upper Midwest. Hay prices for the U.S. averaged 38% higher. The new hay crop will soon be available and prices ought to subside. But, despite higher feed prices returns over feed cost remain positive and dairy producers have been producing all the milk they can in an attempt to recover from the losses incurred during the severely depressed milk prices experienced in 2009.
USDA’s release of April milk production shows the growth in milk production may be slowing. April milk production for the U.S. was estimated to be up just 1.5%from a year ago. This is the smallest increase this year. The slow-down in production was due to a smaller increase in milk per cow, up just 0.7% from a year ago. Milk cow numbers have been increasing month-to-month since beginning last October. The increase from March to April was 8,000 head, putting the number of cows at 0.9% more than a year ago. Of the 23 reporting states, 17 had more milk cows than a year ago, and 13 had less milk per cow. Only six states experienced a decline in milk production.
The milk production growth in the Western states continues to outpace the rest of the country. A smaller increase in milk per cow slowed California’s increase to 2.6%, compared to 3.1% in March. Smaller increases in milk per cow also slowed the growth in Arizona and New Mexico production compared to March. But, Idaho and Texas continued with higher levels of growth, at 4.6% and 7.2% respectively.
No change in cow numbers and just 0.8% more milk per cow netted New York with just 0.8% more milk. Pennsylvania had a few more cows, but 1.2% less milk per cow netted 0.8% less total milk production. In the Upper Midwest, both Minnesota and Wisconsin have been experiencing increases in milk production from more cows and more milk per cow. But, lower milk per cow has meant less milk compared to a year ago for two consecutive months in Minnesota. Production was down 0.9% in March and 1.9% in April. Wisconsin’s production was up just 0.8% in March and down 0.1% in April.
If milk production continues at this slower growth, it increases the probability that milk prices can hold near current levels and, in fact, show strength this summer and fall. The outcome of this year’s crops will be a key factor for feed prices this fall and coming winter and will have a bearing on the number of milk cows, milk per cow and total milk production going into 2012.
Cash cheese reversed gears Monday in a surprise 7 1/4-cent turn around on the blocks and a penny and a quarter-cent gain on the barrels. The gain on the blocks came on one unfilled bid and followed Friday’s quarter-cent increase. Butter inched a half-cent higher, to $2.08.
When asked what prompted Monday’s gain, Dr. Robert Cropp, Emeritus professor at the University of Wisconsin at Madison said “that’s a good question,” in Tuesday’s DairyLine. He mentioned last week’s Cold Storage data which showed a slight decline in cheese stocks from January to February which he said is good news but stocks were still 4 percent above a year ago.
Indications are that cheese demand is holding pretty good, according to Cropp, however cheese production is running strong but buyers may be looking down the road. The last Milk Production report showed U.S. milk output was only up 2 percent and February cow numbers did not increase from January.
“It’s questionable whether it’s going to hold with that much of a jump here” (the cheese price increase), Cropp warned. He expects it to slip some as we go into the spring flush and then start to rebound in the summer months and fall.
I asked if the situation in Japan or China might have any bearing and Cropp pointed out that the markets took a little nosedive immediately after the earthquake in Japan and it looks like exports will recover as there is growing concern about milk quality in Japan. Japan is a major cheese buyer, he said.
China has also been active in the international dairy market, he said, but their interest is more on powdered milk and dry whey than on cheese.
Cropp predicts the March Federal order Class III milk price will be announced Friday by USDA at $19.40 per hundredweight. That would be an increase of $2.40 from February and $6.62 above March 2010. He looks for a Class IV price of $19.65, up $1.25 from February and $6.73 above a year ago.
Cheese trading was uneventful the first day of 2011. The 40-pound blocks held at $1.3425 per pound and the 500-pound barrels held at $1.34. Dr. Bob Cropp, Emeritus Professor at the University of Wisconsin at Madison, said in Tuesday’s broadcast that prices may stay close to where they are however a more typical 3-cent spread between the two has to be re-established, but it’s possible that prices will strengthen a little more due to demand for the upcoming Super Bowl.
He adds the caveat that, with milk production where it’s at and the amount of cheese in storage, we won’t see much enhancement, and price will likely stay below $1.40 until the end of February or first part of March.
Butter, on the other hand, jumped 2 cents Monday and hit $1.69. Butter stocks are half what they were a year ago, according to Cropp, sales have been pretty good, and it appears the export market will hold up.
There is more cream available and the November Dairy Products report will tell us more but he suspects butter production is up. Stocks are tight, he said, but seasonally, supplies will build so he doesn’t see prices much higher than the current level, not at least to the summer and fall period.
Looking ahead in 2011, Cropp pointed to milk production which has been running over 2 percent and close to 3 percent above the previous year. It may take a while to slow that production, he said, but high feed prices and milk prices below $13 will mean the return over feed costs will be tight and production should slow.
“Cheese sales may hold up and export demand may be good as well,” Cropp concluded. “The first half of 2011 may take awhile for that production to slow but I think the second half we could have a pretty good price rally.”
There wasn’t much reaction to Friday’s Cold Storage data in the cash dairy markets in the final Monday of October. Butter remained at $2.1850 per pound, where it’s been since October 7, and has only dropped a nickel since its peak, according to Dr. Robert Cropp, emeritus professor at the University of Wisconsin at Madison in Tuesday’s DairyLine.
He pointed to the latest data showing butter stocks were down 43 percent from a year ago while butter production was only up slightly, so he believes butter will hold for the next week or two as holiday orders are filled.
Buyers and butter producers are hesitant because of concern over inventory values losing ground, according to Cropp, but sales are good, though he sees prices dropping to the $1.70 or below by November or the end of the year.
It’s a different story for cheese. The block price has lost a little over a dime in the last two weeks but cheese stocks have built a little. September stocks were not up a lot from August, which Cropp called “encouraging,” but they’re higher compared to a year ago, when you look at the total cheese inventory which is the same amount that we had in 1984, Cropp cautioned, “so that’s pretty high.”
Buyers are waiting to see how low prices go. He doesn’t see cheese prices rebounding as we get closer to the holidays and looks for prices to fall to about $1.55-$1.60 per pound by the end of the year. He doesn’t expect a rebound then until second quarter 2011.
Cash dairy prices are getting back to the levels that dairy producers would like to see. The butter price is the highest since 2004. Robert Cropp, Professor Emeritus at the University of Wisconsin said on Tuesday’s DairyLine that butter stocks are tight and the market is strong for this time of year. June 30th stocks are down 25 percent. That’s due to the fact that cream supplies are tight, milk fat test is down, CWT has bonuses in exports of butter and milk production is declining.
“Sales have been pretty good, but there is some concern with these kinds of prices,” Cropp said. “We’ll start getting resistance at the retail level, but that hasn’t happened yet.” The futures market has butter declining by December, down to $1.66. Cropp said we’ll see whether that will occur or not, “but it probably will decline towards the end of the year. “
Cheese is a little more uncertain in the fact that stocks are still relatively high, about four percent higher than a year ago in June. Cheese production was pretty strong in June. The total cheese production was up 5. 2 percent.
“That’s quite a bit of cheese,” he said. Cheddar was up 3 ½ percent. The strong sales are on Mozzarella as the frozen pizza business has been good, and schools will be opening up soon. “When schools open up, more milk goes to fluid,” Cropp reported. “I think the cheese market can hold there, maybe increase a little bit more, at least through September.”