Milk Prices Worry Dairy Producers, Again
Dairy profits and milder weather are leading to a surge in milk supplies which according to a report in Bloomberg Businessweek, are turning last year’s best-performing commodity contract into one of the worst of 2012.
Futures traded on the Chicago Mercantile Exchange already fell 29% from a four-year high in August and may drop another 8% to $14.25 per 100 pound by July, the median of six analyst estimates compiled by Bloomberg shows.
An estimated 30% jump in U.S. dairy exports led to the most profitable year ever for farmers, who expanded herds that now are the biggest since May 2009, USDA data show. Yields reached a record during an unusually mild winter.
U.S. dairy farmers had 9.236 million cows in January, the 14th herd expansion in 16 months, USDA data show. Each animal produced a record 21,345 pounds (9.7 metric tons) of milk last year.
The National Milk Producers Federation’s (NMPF) Board of Directors is supporting a resolution urging Congress to pass a farm bill in 2012, one that contains an improved safety net for farmers in the form of the Dairy Security Act. The organization does not support any approach in Congress that would extend current farm programs by another year, and delay the creation of a better dairy program.
“Kicking the can down the road into 2013, where the farm bill is concerned, is neither good politics, nor good policy,” said Randy Mooney, Chairman of NMPF and a dairy farmer from Rogersville, Missouri. “The tough choices about budget priorities won’t be any easier next year. But more to the point, dairy farmers need a better program than what we have right now. A farm bill extension in 2012 doesn’t do us any good.”
“At some point, we have to hold Congress accountable for providing a stable safety net going forward,” Mooney said. “We’ve seen prices drop significantly in the first quarter of 2012, and margins are again compressed, even as farmers are struggling to recover from the severe losses in 2009.”
U.S. consumption of fluid milk will reach 28.61 million tons this year, the highest since at least 1964, and cheese demand will advance to 4.83 million tons, the most since at least 1965, USDA data show. The U.S., with 4.5% of the global population, eats 32% of the world’s cheese production and drinks 6.2% of its milk, the department estimates.
While losses this year may hurt some dairies, most are in better financial shape than in 2009 and 2010, so there won’t be a “wholesale decrease in cow numbers,” said Jon Spainhour, a broker and partner at Rice Dairy LLC in Chicago.
In 2009, the average for milk futures slumped to $11.56, a six-year low, before rebounding in 2011 to $18.55. Last year, the average dairy farm had net cash income of $239,800, the most ever, the USDA estimated Feb. 13, up from $158,100 in 2010 and $70,100 in 2009.
Milk production in California, the largest producing state, climbed 6.6% in January from a year earlier to 3.615 billion pounds, the highest on record for that month, according to USDA data.