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Cropp: March Dairy Situation and Outlook


By Bob Cropp, Professor Emeritus

University of Wisconsin Cooperative Extension

University of Wisconsin-Madison


In March, USDA increased its projected increase in milk production for 2012 from 1.4% to 1.8% and lowered its projected milk prices. USDA projects an average Class III price in the range of $16.35-$16.95/cwt., compared to $18.33/cwt. last year, and the average all milk price in the range of $17.60-$18.20/cwt., compared to $20.13/cwt. last year.


It does appear that milk production will run higher than what was earlier predicted. While strong slaughter cow prices is encouraging increased culling of milk cows a good supply of dairy replacements has prevented a decline in milk cow numbers, and favorable winter weather has improved milk per cow. Cow numbers increased every month last year and continue with increases in January and February. For the 23 reporting states, February cow numbers were 1.2% higher than a year ago. Milk per cow, which averaged just 0.9% higher last year was 2.7% higher in January than a year ago and 3.4% higher in February (daily adjusted). Total milk production, which increased 1.8% last year was 3.9% higher for January and 4.3% higher in February (daily adjusted). Milk production growth at this level is depressing for milk prices.


Not only has favorable weather improved milk per cow Western states have experienced an increase in the number of milk cows. Compared to last February, increases in cow numbers were as follows: Arizona, 3.8%; California, 1.6%; Colorado, 8.1%; Idaho, 1.2%; New Mexico, 3.4%; Texas, 2.6%; Utah, 5.2%; and Washington, 4.7%. In comparison, in the Northeast, except for Michigan, which had 2.7% more cows, cow numbers were unchanged for New York and 0.4% lower for both Pennsylvania and Ohio. In the Upper Midwest, cow numbers were unchanged for Wisconsin; 1.1% lower for Minnesota; and 1.1% lower for Iowa.


As a result, compared to February a year ago (daily adjusted) milk;production was up substantially in the West with the following increases: Arizona, 8.0%; California, 7.1%; Colorado, 8.3%; Idaho, 4.1%; New Mexico, 4.9%; Texas, 5.7%; Utah, 8.5%; and Washington, 5.2%. In comparison, milk production in the Northeast was up 3.1% for New York and 5.7% for Michigan, but up just 0.6% for Ohio and unchanged for Pennsylvania. In the Upper Midwest, milk production was up 2.2% for Iowa; 1.9% for Minnesota; and 4.4% for Wisconsin.


More milk means more dairy product production. Compared to a year ago, January butter production was 8.5% higher, American cheese production 3.1% higher and total natural cheese production 2.9% higher. Butter stocks increased 60% from the end of December to the end of January with Jan. 31 stocks up 44% from a year ago. However, cheese stocks are tighter than

a year ago. From the end of December to the end of January American cheese stocks grew slightly, up 0.2%, while total cheese stocks declined 1.4%. Jan. 31 stocks of American cheese were 4% lower than a year ago and total cheese stocks were 7.1% lower. 


Despite improved cheese stocks, 40-lb. cheddar cheese prices on the CME have fallen from more than $2/lb. from June to mid-August of last year to $1.56/lb. at the beginning of the year to a low of $1.46/lb. on March 6, but since then have improved to $1.5825/lb. as of Mar. 16. However, this latest milk production report may once again put downward pressure on cheese prices. Dry whey prices, which were as high as 70¢/lb. beginning of the year are now trading in a wide range of 50¢-61¢/lb. With lower cheese and dry whey prices the Class III price, which was $18.77/cwt. last December declined to $17.05/cwt. for January to $16.06/cwt. for February, and will be near $15.65/cwt. for March. Class III futures are not overly optimistic for milk prices for the rest of the year. On Mar. 19, Class III futures doesn't reach $16/cwt. until July and peaks out in October at $16.79/cwt.


But, there is still a strong probability that milk prices could turn out considerably higher for the last half of the year than what Class III futures currently show. On the demand side, fluid (beverage milk) sales which declined 1.1% in 2010 and another 1.7% last year continue lower this year with January sales 2.7% lower than a year ago. But, butter and cheese sales look encouraging. Restaurant operators anticipate growth in their business which is optimistic for cheese sales. Dairy exports were a record last year totaling on a total solids basis 13.3% of U.S. milk production. USDA projects exports for this year to be down about 9.4% on a fat basis and 5.3% on a skim-solids basis. World milk supply is higher and world dairy product prices are lower. But, yet this is still a favorable export picture historically and exports could turn better than this. Compared to a year ago, January dairy exports were still encouraging. Exports of nonfat dry milk/skim milk powder were just 1% lower, total whey proteins 1% higher, cheese 3% higher and lactose 8% higher, but butterfat was 28% lower.


Higher milk prices for the last half of the year will definitely depend upon the level of milk production. It will require a slowdown in the increase in milk production from current levels. This could very well happen for the second half of the year. The combination of lower milk prices for the first half of the year, high feed prices and favorable cow slaughter prices could encourage heavier culling of milk cows that could stop the increase in milk cow numbers. Reduced returns over feed costs could also reduce the increase in milk per cow. How 2012 crops develop will be a major factor for the outlook for feed prices later on this year. Also weather will continue to be an important factor in the level of milk per cow this summer and fall.