MONTHLY DAIRY AND MILK MARKET REVIEW

Even though cow numbers are declining, milk prices continued their downward slide since mid-May 2009. The June 2009 Class III milk futures will likely go off the board below $10 again. High feed prices have finally taken their toll on milk production. Herd contraction is expected to continue while production per cow continues to increase.

The USDA May Monthly Dairy Cost of Production per Hundred Weight of Milk Sold continues to be well above current milk prices with just operating cost still over $15 a hundred and total costs well over $25 a hundred.

The Cooperatives Working Together (CWT) program is expected to remove 100,000 cows from the herd by mid-summer and additional culling is expected to be above normal because of the weak returns. Dairy cow slaughter continued to run above last year by 17,000 head for May.

All of this should support improving milk prices toward the end of 2009 and further recovery in 2010. The problem is whether there will be many dairies that survive the current economic situation.

Part of the problem is that domestic demand is weak along with the loss of export markets which continue to pressure prices. US exports reached record highs in 2008 but as quickly as they rose, they have fallen toward the end of 2008 and into 2009. Like many other ag commodities, the rise in the value of the dollar affected exports at the same time milk production recovered in other exporting countries like New Zealand and Australia. In January of 2009 the EU re-opened their dairy subsidy export subsidy program to help its own dairy producers.

USDA announced on May 22 that allocations of DEIP or the dairy export incentive program will be used to help export dairy products internationally. There are some strict rules under which USDA accepts bids from exports and awards payments based on the competiveness of the bid and has specified total quantities that will be eligible.

The Milk Production Report was issued from USDA NASS on June 18, 2009.

· Milk production in the 23 major states for May 2009 was 15.5 billion pounds, up slightly at .01 percent over last year. USDA increased the April production 10 million pounds or 0.1 percent.

· Milk production per cow increased 9 pound above May 2008 with the 23 states average of 1828 pounds.

· May dairy cow numbers in the 23 major states was 8.47 million head. 25,000 head less than a year ago and 10,000 less head than April 2009.

The USDA World Ag Supply and Demand report was issued on June 10th that has All Milk price projections along with the ERS Livestock, Dairy, and Poultry Outlook report released on June 17 with the Class III milk price projections.

· When released, the USDA All Milk price projections for the 3 quarters of 2009 were up 25 cents for the 2nd, up 10 cents for the 3rd quarter, no change for the fourth quarter of 2009, and up 55 cents for the 1st quarter of 2010.

· The All milk projections were below the Class III futures contracts the day before the release for all quarters except for the nearby June, July and August Class III Milk futures contracts. The new projections were from $11.55 for the 2nd quarter; $11.35 for the third quarter, $12.70 for the 4th quarter of 2009, and $13.85 for the 1st quarter of 2010.

· This means that if you agree with USDA, then you could forward price your milk using a futures contract or a forward contract when futures are above the projections. When milk futures are below the projections you might use options contracts to forward price your milk production.

· The Class III USDA Milk price projections were $10.1 for the second quarter and $10.52 for the third quarter, $11.58 for the fourth quarter of 2009, and $12.80 for the 1st quarter of 2010. This is an 11 cent increase for the 2nd, 2 cent decrease for the third quarter, 3 cent decrease for the 4th quarter of 2009, and a 71 cent increase for the 1st quarter of 2010.

· The Class III milk price projections were above all of the Class III milk futures through fourth quarter of 2009 except for the nearby June, July, and August futures. When futures prices are below USDA projections prices, it would suggest using options to lock in prices.

· You can compare the forward contract price offered with your milk buyer to the cost of placing a futures or option contract yourself.

The monthly USDA NASS Dairy Products report was issued June 4, 2009

· April 2009 butter production was 144 million pounds, 3.9 percent below a year ago and 2.1 percent below March 2009.

· Total cheese production for April 2009 was 846 million pounds, 3.2 percent above last year but 2.8 percent below March 2009.

· American type cheese production for April 2009 was 351 million pounds, 3.2 percent above year ago but 2.2 percent below March 2009.

· Italian cheese production for April 2009 was 350 million pounds, up just 0.3 percent above last year but 2.2 percent below March 2009.

· April 2009 Swiss cheese production was up 3.8 percent above last year but down 1.8 percent below March 2009. April 2009 Mozzarella cheese production was down 1.3 percent below last year and down 3.2 percent below last month.

· South Dakota total cheese production for April 2009 was 19.6 million pounds, which is up 3.5 percent above last year and 1.0 percent above March 2009. This includes Mozzarella, American, Cheddar and other cheeses.

The NASS Cold Storage report was issued June 22, 2009.

· The May 31st butter stocks in cold storage were 242 million pounds, 5 percent above last month, but down 7 percent below last year. Of that amount, 213 million pounds were in public warehouses leaving 29 million pounds in private storage.

· Total cheese stocks in cold storage on May 31st were up 5 percent above last month to 957 million pounds and up 9 percent above one year ago. Of that amount, 559.8 million pounds were in public warehouses up from last month.

· American cheese stocks were 608 million pounds, up 3 percent over last month and up 7 percent above a year ago. Swiss cheese stocks were down 8 percent below last year and down 3 percent below last month.

The monthly USDA Livestock Slaughter report was released June 26, 2009.

· Dairy cow slaughter in May was at 212 thousand head.

· Dairy Cow Slaughter for May 2009 was 3,000 head less than last month but up 17,000 head above a year ago.

Know your production costs per hundred pounds of milk produced to be able to use forward pricing alternatives to obtain a profit on your dairy farm. If you need assistance in calculating your unit cost of production, contact your local Extension Office to set an appointment!

Watch for the next South Dakota Dairy and Milk Market Update the end of July 2009.