By: Bob Meyer
Despite no trading on Monday and no activity on Wednesday the cash cheese market really jumped the last two days of the week. Barrels gained 9.5 cents and blocks increased 5.75 cents on the Chicago Mercantile Exchange. Butter gained 1.5 cents and Grade A nonfat dry milk increased 2.5 cents for the week. It was a very good week for Class III futures, the March contract added 75 cents, April increased $1.03, May added 78 cents and August increased 43 cents.
Dairy cow slaughter in January totaled 270,000 head, 13,000 more than in December and 27,000 less than a year ago.
USDA issued total milk production numbers for 2013 on Thursday reflecting some revisions from the preliminary numbers reported a month ago. Total milk production in the U.S. last year was 201.7 billion pounds up just 0.3 percent from 2012. That is the smallest annual growth since 2009.
Eric Meyer with HighGround Trading notes that while milk prices are strong and feed prices are low, producers seem to be reluctant to add cows. While the U.S. dairy herd averaged 9.22 million cows for the year, the number declined 23,000 head in the fourth quarter. The 23 major dairy states declined 21,000 head. On top of that, the bitter cold weather the last couple of months has pushed production per cow lower in the upper Midwest and Northeast.
California milk production was up 4.7 percent in January but Meyer says that is a bit deceiving because if you recall, California production was down significantly a year ago as producers were dealing with much higher feed prices and low milk prices. And now those producers are facing serious water problems.
In conclusion, Meyer says while “extraordinary profit margins are finally making their way to the nation’s dairy farms and efforts are underway to expand production; we believe the nation’s farmers are in to rush to expand their herds given the price volatility of the past five years.” As a result, Meyer expects dairy prices to remain “at elevated levels.”
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