Cropp: Dairy Situation & Outlook

Podcast: University of Wisconsin-Madison professor emeritus Bob Cropp and Mark Stephenson, Director of Dairy Policy Analysis, host their monthly Dairy Situation & Outlook podcast. To see the video, visit http://dairy.wisc.edu/PubPod/Podcast/Outlook/Index.html

 

 

By Bob Cropp, Professor Emeritus

University of Wisconsin Cooperative Extension

University of Wisconsin-Madison

 

USDA’s National Agricultural Statistics Service (NASS) has ceased their monthly milk production report showing milk cow numbers and milk per cow, but continues its estimated total milk production for the 23 major dairy states and the United States.  For March 2013, USDA estimated milk production to be 0.1% lower than a year ago, with U.S. milk production unchanged.

Milk production continues to be lower for most Western states, with production down 2.8% for Arizona, 3.3% for California, 2.9% for New Mexico and 4.1% for Texas. Idaho had a small increase of 0.5%. 

For the Northeast, milk production was up 1.8% higher for New York, 0.3% for Pennsylvania, 3.0% for Michigan and 2.3% for Ohio. 

In the Upper Midwest, production was up 1.8% for Minnesota, 1.0% for Iowa, and 3.0% for Wisconsin.

Not knowing what is happening to cow numbers, it isn’t known whether the March milk production decline was due to more or less cows or changes in milk per cow. Cow numbers could be declining – or at least not increasing – as dairy cow slaughter thus far this year has been 5.0% higher than  a year ago. A year ago dairy cow slaughter was running  0.4% lower than the year before for this period. However, dairy cow slaughter has slowed for the past couple of weeks. Further, January dairy replacements expected to enter the dairy herd within the next months was 4% fewer than a year ago, averaging just 31.7 replacements per 100 milk cows, which is a little lower than the normal turnover of cows in the herd.

A year ago milk production was running strong, the result of more milk cows and increases in milk per cow. March 2012 milk production was 4.3% higher than the year before, and 4.2% higher for the January through March 2012 period (daily adjusted).

USDA is now estimating milk production for 2013 to total 201.8 billion lbs., 0.7% more than 2012 unadjusted for the extra day in February 2012, or 1.0% adjusted. An annual milk production growth of less than 2% is positive for milk prices, especially with the level of anticipated dairy exports this year.

 

Products, prices

The latest USDA dairy product report was for the month of February. Adjusting the production for 28 days in 2012 and comparing it to 2013 shows production was down 0.7% for butter, 2.2% for American cheese, 3.5% for total cheese and 12.1% for dry whey. While the production of nonfat dry milk was down 22.8%, skim milk powder was up 128.6% in response to export potential.

Domestic sales of cheese are reported to be fair, with butter sales strengthening.  But beverage milk sales continue their downward trend. January sales compared to a year ago were 2.1% lower.

Dairy exports are starting out the year above year-ago levels. Compared to a year ago, exports were up 34% for butter, 9% for cheese, 37% for lactose, and 43% for whey protein concentrates. But, exports of nonfat dry milk/skim milk powder and dry whey were 15% and 9% lower, respectively.  Exports are anticipated to continue to improve as drought in New Zealand has cut their seasonal milk production short, and milk production is running lower in Argentina and Australia, with production also lower for most European Union countries. With this level of milk production in the major exporting countries, we can expect exports of nonfat dry milk/skim milk powder and dry whey to also run above year-ago levels by summer. With tighter world supplies, world prices of dairy products are increasing, which will help U.S. exports.

Despite lower dairy product production, stocks of dairy products grew from the end of January to the end of February. These increases were as follows: butter, 16%; American cheese, 3.7%; total cheese, 3.8%; nonfat dry milk, 13.6%; and dry whey, 9.2%. Ending February stocks compared to a year ago were as follows: butter, +17.1%; American cheese, +5.1%; total cheese, +4.5%; nonfat dry milk, +16.5%; and dry whey, +38.7%. Stocks normally do increase as we approach May and early summer, reflecting the spring flush in milk production.

Dairy product prices have shown real strength in recent weeks, reflecting anticipation of continued growth in domestic sales and favorable exports. Chicago Mercantile Exchange (CME) butter was $1.575/lb. the beginning of March and improved to $1.7875/lb. by April 19. CME cheddar barrels were $1.56/lb. the beginning of March and improved to $1.77/lb. by April 19. CME cheddar blocks were $1.575/lb. the beginning of March and improved to $1.88/lb. by April 19. Nonfat dry milk has shown slight strength and is trading in the range of $1.54-$1.68/lb. Dry whey prices are steady, trading in the range of 53¢-59¢/lb.

Stronger dairy product prices are adding strength to farm milk prices. The Class III price was $16.93/cwt. in March, compared to $15.72/cwt. a year ago. The March Class IV price was $17.75/cwt., compared to $15.53/cwt. a year ago. April prices will improve to near $17.65/cwt. for Class III and $18.30/cwt. for Class IV. Dairy futures continue to show strength for distant months. Class III futures are in the low to mid $19s from May through September and end in December at $18.30/cwt. Class IV futures are $20-plus from June through October, and end the year at $19.40/cwt. in December.

Based on existing milk production and market conditions, the Class III and Class IV futures seem quite reasonable. If the growth in milk production continues well below 1%, and domestic sales and exports continue favorable, a Class III milk price reaching $20/cwt. by summer or early fall is quite possible. In recent weeks corn and soybean prices have fallen. However, hay and soybean oil meal prices remain high.  If crop conditions look good by mid-summer, feed prices will decline further. With higher milk prices and lower feed costs, cow numbers could once again start to increase by late summer, along with higher production per cow, increasing the rate of growth in milk production and lowering milk prices at the end of the year and into 2014.

 racropp@wisc.edu