Tuesday, October 16, 2018
 Milk Cuts from U.S. Cow Cull May Spur 39% Rally  

By Whitney McFerron

Milk futures will extend their rally next year, jumping 39 percent on average, as reductions in the U.S. dairy herd erase a surplus that sent prices to a six-year low, a University of Missouri economist said.

Class III milk, used to make cheese, may average $15.66 per 100 pounds (45 kilograms), compared with $11.27 this year, said Scott Brown, a dairy economist at the Food and Agricultural Policy Research Institute in Columbia, Missouri. Milk futures on the Chicago Mercantile Exchange closed Dec. 18 at $14.83, up 60 percent from this year’s low of $9.24 on Feb. 3.

The dairy industry funded four cow culls since December 2008, removing about 252,000 animals and 5 billion pounds of annual production capacity, the Arlington, Virginia-based National Milk Producers Federation said. After the first three culls through the group’s Cooperatives Working Together program, prices for farmers rose by $1.54 per 100 pounds, Brown said.

“World dairy prices have really been escalating in the last couple of months, and that seems to suggest we could be in a much better price situation in 2010 than we’ve seen in 2009,” Brown said. “It’s because of programs like the CWT that are cutting domestic supplies, and we’re starting to get international demand built back for U.S. dairy products.”

Milk futures in February tumbled to $9.24, the lowest price since March 2003, as the global recession curbed demand for U.S. exports and efficiency gains led to record milk output. Last month, production fell 1 percent from November 2008 to 15.06 billion pounds, the fifth straight decline from year-earlier levels, the U.S. Department of Agriculture said.

Through Dec. 5, U.S. dairies sent about 2.7 million cows to slaughter this year, up 9.9 percent from the same period last year, according to the USDA.

Next year, farmers may get $16.78 per 100 pounds for their milk, up 34 percent from about $12.51 on average this year, Brown said. The USDA said Dec. 17 that it is implementing a program that will provide $290 million to farmers suffering from losses.

“On average, the price U.S. dairy producers received for milk marketed in the summer of 2009 was about half of what it cost them to produce milk,” the USDA said in a statement.

Rising global demand also has boosted dairy prices since the USDA increased export subsidies for milk, butter and cheese in May, said Michael Marsh, the chief executive officer of Western United Dairymen, a Modesto, California-based trade group.

Dairy-product exports climbed 10 percent in October from the same month a year earlier to 115,549.4 metric tons, USDA data show. In the first ten months of this year, exports were still down 21 percent from 2008.

“It was a global situation on both the supply and demand sides that had to be remedied, and that’s effectively what is taking place,” Marsh said. “Demand has increased, which is always very good, and at the same time, supplies have shrunk, not just in the U.S. but around the world.”

Source: Bloomberg News, IL


Posted on Sunday, December 27, 2009 (Archive on Sunday, January 03, 2010)
Posted by bsutton@adpi.org  Contributed by bsutton@adpi.org