Michigan Milk Market
Several factors hang over the US milk market as 2010 ended: one billion pounds of cheese, booming exports, and expensive feed grain. The first factor reflects a large inventory of cheese that accumulated in the past couple of years with the total stocks exceeding one billion pounds today. In recent years the average value of total natural cheese stocks has been about 800 million pounds so the current value is about 25% above average.
The last time total cheese stocks were this large was back in the massive surpluses of the early 1980’s. At least three things are different now than back then. First, cheese consumption and population have grown so that this surplus is not as large in relative terms. Second, the government held about 70 percent of the cheese stocks three decades ago while it holds less than one percent today. Finally, US dairy exports are much larger than that period with the US perhaps being the low-cost dairy producer today. Still, one billion pounds is a lot of cheese.
Figure 1 below displays the value of US dairy exports monthly from January 2001 through September 2010. Since units are in $1,000 increments, the peak values on the graph are approximately $350 million. The steady increase in values that came to an abrupt end in the economic crisis of 2008 may be back on track as 2010 values are similar to those from 2008. Exports which set records in 2008 may set new record levels in 2010. Through the first nine months of 2010, 280 lb million of cheese were exported. The previous record for an entire year was 290 lb million, so that record will almost certainly fall. Consider that even at the current export rate it would take quite some time to export the existing US cheese surplus.
With holiday orders essentially filled, the Class III price for the coming months weakened recently. The rise of corn prices above $5/bu reflects tight world supplies and volatility in related markets (i.e., oil).
These corn prices are not the shock that they were a couple of years ago but they mean that it is costly to be caught short on feed. 2009 left many dairy farms across the US with little margin of error financially.
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