Cropp: March dairy situation and outlook

By Bob Cropp, Professor Emeritus

University of Wisconsin Cooperative Extension

University of Wisconsin-Madison


Despite widespread drought last year and high feed prices, milk production continues to run above year-ago levels, but up just slightly. USDA’s release of February’s milk production, when adjusted for leap year, showed production compared to a year earlier up just 0.1% for the 23 reporting states, and is estimated to be even for the U.S. This is down from increases in January of 0.5% for the 23 states and 0.6% for the U.S.

Milk per cow fell below year-ago levels for two months last year, August and September, and has been above year-ago levels ever since. February milk per cow was up just slightly for both the 23 states (0.2%) and the U.S. (0.3%).  

Milk cow numbers peaked in April last year and then declined May through October. Since then, milk cow numbers have been increasing despite heavier cow slaughter. February cow numbers were 2,000 head higher than January for both the 23 states and the U.S. The net result was milk production below a year ago during August through October of last year and above a year ago since then.

Adjusted for leap year, February milk production was below a year ago for Western states. February milk production was below a year ago by 3.5% for Arizona; 4.7% for California; 0.8% for Idaho; 0.5% for New Mexico; and 2.0% for Texas. Each of these states had fewer milk cows than a year ago.

In the Northeast, February milk production was above a year ago by 1.5% for New York; 1.6% for Pennsylvania; 2.6% for Ohio; and 4.2% for Michigan. 

And, in the Midwest, production was above a year ago by 1.3% for Iowa; 2.6% for Minnesota; and 3.9% for Wisconsin.

With milk production running above a year ago, dairy product production is also higher. January production compared to a year ago shows butter up 2.6%; cheddar cheese up 2.9%; and total cheese up 2.4%. 

Exports have been lighter and domestic buyers have not been aggressive, resulting in increased stocks. Jan.  3 stocks compared to a year ago shows butter up 21.3% (increased 35% since the end of December); American cheese up just 0.2% ;and total cheese up 1.2%. Stocks of nonfat dry milk were up 57.2%; dry whey stocks up 17.5%.

Dairy exports were a record in 2012, accounting for 13.2% of U.S. total milk solids. But, exports trended lower the last quarter, with December exports the lowest in two years. December exports were equivalent to just 11.6% of total milk solids. Exports suffered due to increased milk production in New Zealand, which allowed for greater exports and at prices lower than U.S. prices. But, weather has turned unfavorable in New Zealand, with dry weather causing deteriorating pastures, lowering milk production and bringing their seasonal production to a quicker end.

Dry weather in parts of Australia, and wet in other parts, has reduced Australia’s milk production as well. Argentina’s milk production is now running below a year ago, and production is flat in the European Union. The result has been increased prices on the Global Dairy Trade for the past seven trading sessions, bringing prices closer to U.S. prices. So, once international buyers work off inventories, U.S. dairy exports ought to increase giving strength to milk prices. In fact, exports already started to improve in January. Compared to a year ago,  exports were up 13% for cheese; 54% for whey protein concentrate; 11% for lactose; and 40% for butter. Exports of nonfat dry milk were down 18%; and dry whey exports down 14%. Yet, exports as a percentage of total milk solids improved to 12.3%.

Dairy product prices weakened early March from where they were the end of February. Butter was an exception, at $1.55/lb. at the end of February, and increasing to $1.70 by March 19. Cheddar blocks were $1.595/lb. the end of February, fell to $1.55/lb. on March 4, but started to increase on March 7, and are now $1.62/lb. Cheddar barrels were $1.57/lb. the end of February, fell to $1.535/lb. on March 4, but started to increase on March 5 and are now $1.60/lb.. Both nonfat dry milk and dry whey prices have softened since February.

Early forecasts were for milk prices to start to increase in March. But, as noted above, cheese prices surprisingly weakened from what was expected with rather tight stocks. However, cheese production and stocks were building. The Class III price was $17.25/cwt. for February and will be about $16.95/cwt. for March. Class IV was $17.75/cwt. in February and will be about $17.80/cwt. in March. With cheese prices strengthening Class III futures have strengthened with April at $17.53/cwt., reaching $18.13/cwt. in May and $19/cwt. or higher from July through October, ending in December at $18.20/cwt. 

With lower milk production in New Zealand opening up possible export opportunities for the U.S. Class IV futures have also strengthened. March Class IV futures are $17.80/cwt., with April at $18.15/cwt., hitting $19/cwt. in June and staying in the high $18/cwt. the remainder of the year.

Earlier forecasts had no or little increase in 2013 milk production. USDA and others have revised the forecast for increases in 2013 milk production of between 1% and 1.8%. As a result, the forecast for average milk prices for the year were lowered.  But, the range in forecasts is rather wide with Class III price reaching $20/cwt. by September and October to those who still have prices below $18.00/cwt. 

I still feel the probability of Class III reaching and holding at $19/cwt. or highe by summer and fall as current futures show is quite high. But, the crop conditions and resulting feed prices this summer and fall will be critical to milk production and final milk prices the last half of the year.