USDA may show first milk production uptick in 7 months

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U.S. milk production may have risen in February for the first time in seven months, suggesting this year’s price slump has further downside, dairy traders say.

Last month’s milk production is expected to be up slightly less than 1 percent compared with February 2009, Chicago dairy futures traders said today. The U.S. Department of Agriculture is scheduled to release its monthly Milk Production report for February tomorrow afternoon.

If milk production was higher last month, it would mark the first monthly year-over-year increase since July, when output rose 0.1 percent, according to USDA figures. In January, production fell 0.6 percent compared with the same month in 2009, to 16.04 billion pounds.

Milk prices have already tumbled almost 16 percent this year, based on CME Group futures, and any production uptick comes as the industry grapples with an overhang of cheese supplies. Recent price erosion has dimmed profit prospects for 2010 and indicates dairy producers haven’t put the troubles of 2009 behind them, analysts said.

“There’s growing concern that things are not going to turn around as fast as we’ve hoped,” said Ed Jesse, an agricultural economist at the University of Wisconsin in Madison. “We’re not out of the woods yet.”

Jesse expects February milk production to be little-changed -- anywhere from up 0.5 percent to down 0.5 percent -- compared with the same month in 2009.

In February 2009, U.S. milk production totaled 14.754 billion pounds, the lowest for any month since 14.321 billion pounds in February 2007, according to USDA data.

Still, any increase over last February would be bearish for milk prices because dairy producers may be expanding cow herds again, Jesse said. In January, the milk-cow herd fell 2.4 percent from a year earlier, to 9.085 million head.

“It looks like we’ve troughed on cow numbers,” Jesse said. “We need to lose some more cows to get to a supply-demand balance.”

Additionally, cheese stocks “are very high,” Jesse said. “We continue to produce more cheese than we can use.”

Overproduction and a weak global economy triggered a milk price crash a little more than a year ago, sending CME futures to $9.26 per hundred pounds in February 2009, the lowest in a decade.

While U.S. dairy producers culled thousands of cows to stem losses, herd contraction slowed earlier this year, the USDA said previously.

On the CME trading floor, dairy traders say milk prices may not be done falling.

Class III milk futures for April delivery today fell 19 cents to $12.44 per hundred pounds, down from $14.77 at the end of 2009 and a low for the life of the contract.

“It feels pretty heavy,” one CME trader said today, referring to his outlook for milk prices. “There’s nothing bullish near-term.”



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