Milk Price Slumping as Record Profit Spurs Expansion of Herds: Commodities
Bloomberg - Mar 13th 2012, 08:53
Record dairy profits and milder weather are leading to a surge in milk supplies from Auckland to California, turning last yearâ€™s best-performing commodity contract into one of the worst of 2012.
Output in the U.S., the worldâ€™s largest producer, will advance 1.8 percent to a record 199.7 billion pounds (90.6 million metric tons) in 2012, the Department of Agriculture estimates. Futures traded on the Chicago Mercantile Exchange already fell 29 percent from a four-year high in August and may drop another 7.8 percent to $14.25 per 100 pounds by July, the median of six analyst estimates compiled by Bloomberg shows.
An estimated 30 percent 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. Supply is also rising in Australia and New Zealand, the largest exporter, and dairy was the only food cost tracked by the United Nations to decline last month.
â€śThis blasted weather that most people have enjoyed, the dairy cows have really enjoyed it,â€ť said Bill Brooks, an economist for INTL FCStone Inc. in Kansas City, who grew up on a dairy farm in Missouri and has covered the industry for two decades. â€śWeâ€™re going to see more milk production.â€ť
Milk futures that jumped 31 percent last year, more than any of the 24 commodities in the Standard & Poorâ€™s GSCI Spot Index, tumbled 10 percent since Dec. 30 to $15.45 yesterday. Only natural gas and arabica coffee fell more. The S&P GSCI Agriculture Index advanced 1.2 percent this year, as the MSCI All-Country World Index of equities rose 10 percent. Treasuries lost 0.5 percent, a Bank of America Corp. index shows.
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. Fonterra Cooperative Group Ltd., the largest dairy exporter, shipped 246,000 tons in December, the most ever. Deliveries to its plants rose 9.8 percent in the eight months ended Jan. 31, the Auckland-based company said last month.
Rising supply may meet weaker gains in demand. China, the biggest buyer of U.S. agricultural products, is targeting economic growth of 7.5 percent, the lowest since 2004, Premier Wen Jiabao said March 5. The economy gained 8.9 percent in the fourth quarter, the slowest pace in 10 quarters.
Declining milk prices and rising cattle-feed costs may require farmers to cull herds, reducing supply, said Chip Whalen, a vice president of education and research at Chicago-based Commodity & Ingredient Hedging LLC, which advises clients on managing commodity price swings. Corn futures averaged $6.78 a bushel in Chicago last year, the most in at least a half century. Record beef prices also may encourage more slaughtering.
â€śWeâ€™re going to go through another one of these cycles where weâ€™re going to cull the herd,â€ť said Shawn Hackett, the president of Hackett Financial Advisers Inc., a brokerage and consultant based in Boynton Beach, Florida. â€śWeâ€™re setting a stage for a significant slowdown in production growth, starting in the later part of this year,â€ť said Hackett, who anticipates a rally to $18 in the second half of 2012.
While China may slow this year, the U.S. will expand 2.2 percent from 1.7 percent in 2011, according to the median of 79 economist estimates compiled by Bloomberg. 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 percent of the global population, eats 32 percent of the worldâ€™s cheese production and drinks 6.2 percent of its milk, the department estimates.
Farmers may be reluctant to cull herds. While losses this year may hurt some dairies, most are in better financial shape than in 2009 and 2010, so there wonâ€™t be a â€śwholesale decrease in cow numbers,â€ť 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.
Exports were the â€śkey factorâ€ť in last yearâ€™s rally, said Bob Cropp, an economist at the University of Wisconsin in Madison who has been studying the industry since 1966. U.S. dairy exports totaled $4.78 billion in 2011, up from $3.69 billion in 2010, according to the USDAâ€™s Foreign Agricultural Service. Shipments will drop 2.2 percent in 2012, according to a report by USDA economist Milton Madison at a Feb. 24 forum in Washington.
The industry is now facing more competition in export markets, said Brooks of INTL FCStone. Output in New Zealand, curbed by drought last year, may rise 8 percent to 10 percent this season, according to Southbank, Australia-based Dairy Australia, which raises levies from farmers to fund industry projects.
Production in Australia may rise 1.4 percent to 9.55 billion liters (2.5 billion gallons) in the year beginning July 1, the Australian Bureau of Agricultural and Resource Economics and Sciences said in a report March 6. Flooding last year limited output and disrupted transportation.
U.S. output is also rising on improving weather. The three- month period ended in January was the sixth-warmest-ever for that time of year, according to Brad Rippey, a meteorologist with the USDA. The four warmest all happened since 1998 and the other was in 1933-1934, the dust bowl era.
Milk production in California, the largest producing state, climbed 6.6 percent in January from a year earlier to 3.615 billion pounds, the highest on record for that month, USDA data show. Thereâ€™s â€śmilk coming out of our ears,â€ť said Bill Schiek, an economist at the Dairy Institute of California in Sacramento, which represents processors in the state.
The drop in prices is no incentive to cut production for Ray Souza, who has 900 Holstein cows on his farm in Turlock, California. Farmers tend to react by increasing output because their costs remain similar, he said.
â€śWeâ€™ve never produced at this level before,â€ť said the 65- year-old, who has been in the dairy business since 1973. â€śCows produce more milk in the springtime than they do in any other part of the year. This spring seems to have started around the first of December.â€ť
Milk dispute breaks out, Namibia
08/11/2013 - 09:33
The Association of Meat Importers and Exporters of Namibia, which represents the interest of dairy and meat importers and exporters, has said that the recent decision by government to limit the amount of milk imported into the country will limit consumer choices.
Woolworths reports strong results
29/08/2013 - 08:34
Highlights â€˘ Turnover up 23.2% â€˘ Profit before tax up 27.1% â€˘ Headline earnings per share up 27.3% (52 weeks: 25.3%) â€˘ Return on equity up from 46.4% to 49.7% â€˘ Cash dividend of 148 cents declared
Woolworths outshines competitors
05/08/2013 - 10:25
A surge in Woolworthsâ€™ sales, which bucked the weaker sales growth trend of ailing local retailers, was because the food and fashion retailer was not dependent on credit like its competitors, analysts have said.
Zambeef share price in marginal drop
10/07/2013 - 08:55
Zambeef Products Plc share price on the Lusaka Stock Exchange (LuSE) has declined by two percent over the last few weeks following reports of alleged importation of contaminated beef, Stock Broker Zambia Limited (SBZL) has said.
Global factors weakening the rand
13/06/2013 - 08:27
Johannesburg - Global factors are the main contributors to the current volatility of the rand, analysts said on Wednesday.