milk prices to double

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"...The National Milk Producers Federation in Arlington, Virginia, will pay dairies to slaughter 103,000 U.S. cows in coming months. Milk futures prices will double next year to a record $23 per 100 pounds (43.5 kilograms) as the herd shrinks by 171,000 head, the most since 1989, said Michael Swanson, a senior economist at Wells Fargo & Co., the largest lender to U.S. farmers..."


Dino Giacomazzi, whose great- grandfather started the Giacomazzi Dairy in Hanford, California, in 1893, said he had no choice but to sell 100 cows, or 11 percent of his herd, in the past four months. Rising feed prices and a world surplus meant it cost as much as $17 to produce $10 of milk. “Producers are in an absolute state of panic,” said Giacomazzi, 40. “To spend 100 years building a dairy business and see much of that equity disappear in a year is very troubling.”
Farmers plan to shift the pain to consumers. The National Milk Producers Federation in Arlington, Virginia, will pay dairies to slaughter 103,000 U.S. cows in coming months. Milk futures prices will double next year to a record $23 per 100 pounds (43.5 kilograms) as the herd shrinks by 171,000 head, the most since 1989, said Michael Swanson, a senior economist at Wells Fargo & Co., the largest lender to U.S. farmers.
The cuts will lead to the first two-year drop in output in four decades and higher prices in 2010 for butter, cheese, milk and the non-fat dry powder that’s a benchmark for global exports, according to U.S. Department of Agriculture forecasts. Futures for delivery in September 2010 trade 56 percent above today’s prices on the Chicago Mercantile Exchange.
Retail butter prices may rise above the record of $3.937 a pound and cheddar cheese may top $5.097 a pound, according to Jerry Dryer, 65, the editor of the industry newsletter Dairy & Food Market Analyst in Delray Beach, Florida.
‘Big Spike Up’
“We could easily see $20 milk again next year,” said Richard Bradfield, a vice president of the dairy business at International Ingredient Corp., a manufacturer of specialty feed products in Fenton, Missouri. “The longer these low prices last, the greater the potential for a big spike up in prices as dairies make larger cuts.”
Farmers are culling herds because exports plunged 26 percent in the first four months of the year, supplies rose and the cost of corn, the primary feed ingredient, averaged almost $4 a bushel.
At Tulare County Stockyard Inc. in Dinuba, California, more than three fourths of the cows Giacomazzi sold were purchased by beef processors including Cargill Inc., owner Jon Dolieslager said. Many smaller dairies that bought animals at auctions last year are out of business, he said.
Sold for Beef
“The Giacomazzi dairy is unique because of its reputation for taking care of its animals and the long history of superior genetics,” said Dolieslager, who also auctions hogs, beef cattle, goats, sheep and horses. “Less than 2 percent of dairy cows we sell will go out to other dairies.”
“No one is making money producing milk,” Wells Fargo’s Swanson said by telephone from Minneapolis. “The milk price remains well below the total cost of production.”
U.S. output increased to a record 16.73 billion pounds in May as cows on average produced 1,804 pounds each, the most ever, the USDA said June 18. A gallon weighs 8.6 pounds.
Wholesale milk fell 51 percent in the past year and reached $9.93 per 100 pounds on June 19 on the CME. The USDA forecasts average cash prices this year will drop 34 percent, the most since the agency began keeping the data in 1980. While corn fell to $4.195 last week from a record $7.9925 a bushel in June 2008, it’s still 54 percent above the decade average.
Cheese, Butter
Cheese prices on the CME have fallen 43 percent in the past year to $1.1175 pound, while butter dropped 17 percent to $1.215. The retail cost of cheddar cheese rose 4.7 percent to $4.605 a pound in May from a year earlier, government data show. The average supermarket price of butter fell 15 percent to $2.778 a pound last month from a year earlier.
“Wholesale butter and cheese prices could rebound $2 a pound next year,” as the herd declines, Dairy & Food Market’s Dryer said. “Low prices are not going to last because we will see inflation across the board next year.”
In California, the largest milk-producing state, dairies lost $1.07 per 100 pounds in April, compared with profit of $11.23 in July 2007, based on feed costs and milk prices, USDA data show. In January, the state was the most unprofitable in at least six years of record-keeping.
“We’re all in survival mode,” said John Gailey, 35, the general manager and a part owner of the 4,000-cow the Milky Way Dairy near Visalia, California. Gailey cut his herd by 400 head, or 9.1 percent, since March. “I’m surprised we are not hearing about more people filing for bankruptcy.”
24-Month Wait
It takes about 24 months and $1,600 to feed and care for a dairy heifer before it starts producing milk, Gailey said. The price of a young cow ready for milking has dropped by half in the past year to $1,200, he said.
Farmers spent most of the past decade expanding to meet rising global demand.
Futures peaked at a record $22.45 in June 2007 as a drought in Australia and New Zealand, the biggest exporters, curbed supplies. Demand increased in Asia as economic growth allowed consumers to switch to more protein-based diets.
U.S. exports jumped to a record 2.55 million metric tons last year (653.7 million gallons), up 16 percent from 2005, and the value of the shipments rose 25 percent, according to the U.S. Dairy Export Council in Arlington, Virginia. Overseas sales accounted for 11 percent of U.S. production, more than twice the share of 2002, the council said.
By the end of 2008, with the global economy in the first recession since World War II, U.S. milk production had grown to a record 190 billion pounds and the dairy herd was at a 12-year high of 9.315 million cows, according to the USDA.
European Protests
When global prices sagged, European farmers sought government aid and disrupted food supplies. Eight hundred producers from across Europe protested in Brussels last month, and in parts of France grocers ran out of cheese and yogurt because of farmer protests.
Dairy Farmers of Britain Ltd., the U.K. cooperative, filed for receivership this month after firing workers and closing dairies. Dairy Crest Group Plc, the biggest U.K. producer, lowered its milk price in April to 26.28 euro cents per liter ($1.40 a gallon), reflecting a 32 percent drop since October, according to the Web site of the Dutch farmers’ organization LTO-Nederland.
U.S. dairies are trimming the herd. The kill in the week ended June 6 rose to 60,800 head, 35 percent higher than a year earlier, according to USDA data. This year’s cull is up 13 percent from 2008.

(more at the link - article too long to post in total)


from: http://www.bloomberg.com/apps/news?pid=20601087&sid=a9WBQ0UBiWCY
 
they are only $1.99 a gallon with a kroger card at kroger.
 
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