Monday, November 19, 2018
 Milk Glut Hurts California Dairy Finances  
Drink up – milk prices are expected to stay low through summer as the dairy business struggles with a glut.

The price farmers get for their milk will rise nearly a dime May 1, pushing up minimum retail prices by roughly the same amount.

But milk is still selling for far less than it costs to produce. As production outpaces demand, analysts and farmers expect the market to stay weak for the next few months.

"We'll just be prepared for an ugly financial situation," said Case Van Steyn, who milks about 1,000 cows in the Galt area.

The dairy sector is stuck with too many cows and not enough demand. And over the past couple of years rising feed prices increased costs.

Exports of dairy products are down by a third from last year, thanks to the bad global economy, a stronger dollar and foreign competitors.

Slumping sales in the restaurant sector – which, along with food service, accounts for 60 percent of the nation's cheese consumption – have hurt demand too, particularly for the mozzarella used on pizza.

With about $7 billion in farm sales annually, California is the nation's largest dairy state. Behind Wisconsin, it is second in cheese output.

Supermarkets have hesitated to cut retail prices for many dairy products after wholesale prices collapsed in January. So today's low farm prices aren't translating into a wave of consumer demand, said Joel Karlin, a commodities analyst at Western Milling in Goshen in Tulare County.

Dairy farmers have increased the rate at which they sell their animals to slaughter, but the move hasn't reduced the national herd of 9.2 million cows enough to cut supply appreciably. In hopes of trimming milk production more, a national dairy group is taking bids from farmers this month who want to sell off their herds, said Michael Marsh of Western United Dairymen.

That effort might eliminate as many as 200,000 more cows. But, based on the futures markets for dairy commodities, Karlin said, traders don't think the culling alone will be enough to boost prices.

"What would give the market an additional boost would be signs that demand for milk and dairy are starting to pick up – but that hasn't been the case," he said.

Still, some slices of the cheese industry are doing well, said Bill Schiek, an economist with the Dairy Institute of California, a processors group.

The cheddar business has been fairly strong thanks to demand from low-end buyers, who use a lot of that variety.

"If you're selling to fast food or food service (outlets) where they have a budget menu, then you're seeing pretty good sales," he said.

But cheddar made up only 18 percent of the 2.1 billion pounds of cheese made in California last year. Mozzarella, which isn't selling as fast because of the slowdown in pizza sales, accounted for 52 percent of the total.

Source: The Sacramento Bee (CA)

Posted on Friday, April 17, 2009 (Archive on Friday, April 24, 2009)
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