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Cropp: December Dairy Situation and Outlook

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By Bob Cropp, Professor Emeritus

University of Wisconsin Cooperative Extension

University of Wisconsin-Madison

 

USDA’s monthly milk production report for November shows the growth in milk production is slowing. For the 23 reporting states, November milk production was just 0.3% higher than a year ago, while October production was 1.4% higher. 

Estimates for the U.S. show November production up just 0.1%, while October production was 1.2% higher. Milk cow numbers in November for the U.S. fell 3,000 head below a year ago. Cow numbers have fallen by 44,000 head since July. 

Of the 23 reporting states, four had fewer milk cows in November than October, no state had increased cow numbers from October, and eight had fewer milk cows in November than year ago. Despite improved returns over feed costs U.S. milk per cow was up just 0.11% from a year ago. Of the 23 reporting states, 11 had less milk per cow.

November milk production compared to a year ago for Western states show Arizona up 0.9%, California up 0.6%, Idaho down 1.8%, New Mexico down 1.9% and Texas up 2.4%. The decline in production for both Idaho and New Mexico was due to fewer cows and less milk per cow.

In the Northeast, New York’s milk production was up 2.1% and Michigan up just 0.5%, but production was down 0.2% for Pennsylvania and 2.3% for Ohio. Pennsylvania’s decline was due to fewer cows and for Ohio both the number of cows and milk per cow were lower.

In the Upper Midwest milk production was down 0.3% for Iowa, 1.9% for Minnesota and 0.6% for Wisconsin. The decline in milk production for each of these states was due to less milk per cow. Prior to November each of these states were experiencing higher milk production than a year ago. Perhaps lower quality forages being fed explain the decline in milk per cow. There was a lot of winterkill of alfalfa in Minnesota and Wisconsin, followed by a wet spring delaying corn planting and wet early summer curtailing harvesting of alfalfa and then a summer drought reducing hay yields. So there are dairy farmers in Wisconsin and Minnesota with lower forage quality as well as quantity.

The relatively small increase in milk production, the seasonal good demand for cheese and butter, and very strong dairy exports have resulted in higher dairy product prices and farm milk prices for December. December dairy product prices have been above November prices all month. CME butter price ranged from a low of $1.55/lb. to a high of $1.66 and currently is $1.56. CME 40-lb. cheddar blocks ranged from a low of $1.8725/lb. to a high of $1.9475 and are now $1.985. CME cheddar barrels ranged from a low of $1.775/lb. to a high of $1.885/lb. and are now $1.93. In the West dry whey has been trading in the 56¢-60¢/lb. range and nonfat dry milk in the range of $1.97-$2.03/lb. These higher dairy product prices will result in a December Class III price near $19.00/cwt. and the Class IV price near $21.50/cwt.. For the year, the Class III price could average near $18.00/cwt., 55¢ higher than 2012; the Class IV price could average near $19.00/cwt., $3.00 higher than 2012. The U.S. all-milk price could average near $19.95/cwt., $1.45 higher than 2012. The U.S. all-milk price will be the second highest on record compared to the record of $20.14/cwt. for 2011.

Continued strong dairy exports are a major factor for these higher prices. Compared to October a year ago exports were up 153% for butter and butterfat, 42% for cheese, 56% for nonfat dry milk/skim milk powder, and 13% for dry whey. Exports for 2013 will be the fourth consecutive year of setting a new record high. Exports on a total solids basis will be equivalent to about 15.5% of U.S. milk production compared to 13.5% in 2012. 

Exports ought to stay strong going into 2014. The drought in New Zealand during their second half of the 2012/13 season lowered their milk production and wet weather along with high feed cost kept the combined EU milk production rather flat. These factors along with strong world demand tightened world stocks of dairy products. While New Zealand’s milk production thus far for their 2013/14 season is about 5% higher than a year ago and milk production has improved in the EU-countries, with the continued strong world demand it will may be until at least the second half of 2014 before world dairy stocks are replenished to a point where world milk prices decline. So, strong US dairy exports will continue into 2014 and could still end up for the year near the record exports in 2013.

Relatively small increases in milk production have kept dairy product production lower as well. Compared to October a year ago, butter production was just 1.2% higher, American cheese production was 0.6% lower, and total cheese production 2.1% higher. Nonfat dry milk production was 10.1% lower as more milk was shifted into skim milk powder for exports.

Smaller increases in dairy product production along with good seasonal sales and strong exports have reduced stocks of dairy products for five consecutive months. Oct. 31 butter stocks declined 25.4% from September, but were still 19.8% higher than a year ago. Oct. 31 total cheese stocks declined 4.3% from September but were still 2.9% higher than a year ago.

Looking ahead into 2014, with continued strong exports and dairy stocks declining, any sharp decline in milk prices is not expected. The Class III price could still average near $18.25/cwt. for the first quarter, and the Class IV price about $21.35/cwt. 

For the second quarter, the Class III price could average in the high $17s, and the Class IV price in the low $20s. 

But, with higher milk prices and lower feed costs as we move through the year, we can expect milk production to pick up – with milk cows being added and improved milk per cow. This will put some downward pressure on milk prices for the second half of the year. 

Dairy cow slaughter appears to be slowing with year-to-date slaughter numbers through the first week of December just 1.75% higher than a year ago during this period. Increases in milk per cow also should improve with lower feed costs. Tighter alfalfa hay inventories and over-all forage quality in some key states like Minnesota and Wisconsin could dampen the increase in U.S. milk production. But, total U.S. milk production for 2014 could still end up about 1.8% higher than 2013. Yet, the average all-milk price for the year may still average no more than about 50¢ lower than the average for 2013.

 

Robert Cropp

racropp@wisc.edu

University of Wisconsin-Madison

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