Market Psychology
March milk prices were lower than February, with the PA all-milk price down $0.80 /cwt. The Class IV price rose by $0.02, while the Class III price fell by $1.50. Since then the cheese market has been on a roller coaster ride, climbing and then falling. As a result, the Class III price on the CME is about where it was last month at this time, despite all the movement in between. Table 1 has these prices, the Class III and Class IV futures prices as of April 16, and the implied PA all-milk price based on these futures market prices. The predicted average all-milk price for all of 2010 is $0.33 higher than last month’s values. The next few months are forecast to be in the $16.50 range, with the second half of 2010 being above $17.50, with an average of $17.57 for the year overall.

As mentioned above, the cheese market has rose steadily for the first part of the past month, going from $1.2675 to $1.51, only to settle back to $1.3975, an increase of 13 cts./lb. In contrast the butter market has climbed from $1.46/lb to $1.56. Non-fat dry milk prices have been also risen $0.11/lb. Whey powder has lost $0.03/lb.

February dairy imports were up $8 million over January, a 6% increase. February dairy exports were up as well, but only 1.7%. The February dairy trade balance remained positive, although somewhat less than in January. The dollar ‘s exchange rate with the Euro is similar to a month ago, despite considerable uncertainty in the interim. Although an agreement has been reached to prop up Greece, Portugal is in trouble as well, making the Euro shaky. Both the Australian and New Zealand dollars have strengthened more versus the U.S. dollar, which helps our dairy products in world markets. More importantly, the North Island of New Zealand and the state of Victoria in Australia are experiencing drought, which will reduce milk production, especially in Australia. Dairy production in the European Union continues to fall. Since these are the major exporters of dairy products other than the U.S., these events should help buoy world prices.

Events internationally are more optimistic for prices in coming months than they have been recently.
Having said that, recent price changes don’t reflect this optimism.

Corn and Soybean Markets
Corn is trading lower than this time last month, despite recovering 15 cents lately. The latest USDA estimates cut domestic corn usage slightly, but not enough to have much impact. The crops in Brazil and South Africa are both looking good. Soybeans rose in the past month and are now at the top of the trading range for the past few months. USDA’s prospective plantings report shows a record number of soybean acres for 2010. Likewise, the estimates of the crops in Brazil and Argentina continue to be increased. Soybean meal is up $20/ton from this time last month, driven by strong export demand, especially to Southeast Asia.

Income over feed costs
Penn State’s measure of income over feed costs fell $0.59/cow/day in March or 7.5% from its February levels. This is almost entirely because the milk price dropped. The price fell in February, but feed prices fell also. This value reflects daily gross income less feed costs for an average cow producing 65 pounds of milk. Figure 1 and table 2 showing the monthly data are appended.

The allocation of the revenue per hundred pounds of milk is shown in Table 3. This value, the milk margin, is the estimated amount from the Pennsylvania all milk price that remains after feed costs are paid. As with income over feed cost, this measure shows that March was down from January and February. Both income over feed costs and the milk margin will be lower in April, and if the price expectations are accurate, will not top the March levels until July and February levels until September. Feed costs have stabilized in recent months, so the variation in profitability now mainly the result of movement in the milk prices.

Milk Production and Cow Numbers
Milk production in March was 16,576 mil. lbs., up 0.5% from last year. Figure 2 shows the data from the last few years. Cow numbers are unchanged from February, to 9,090,000 head, although down 193,000 from March 2009. Figure 3 shows this data. This is the fourth straight month where cow numbers are essentially unchanged. Individual states show considerable variation in milk production compared to last year. Pennsylvania is up 1.6%, New York up 0.2, Wisconsin up 6.3%, Idaho up 3.0%, and California down 0.7%. No doubt weather and other factors are important here, but cow numbers tell part of the story. Pennsylvania cow numbers are down 1.8%, New York down 2.1%, Wisconsin up 0.3%, Idaho up 0.7%, and California down 3.5%.

Source: Jim Dunn, Professor of Agricultural Economics, Penn State University