Cropp: August Dairy Situation and Outlook

By Bob Cropp, 

Professor Emeritus

University of Wisconsin‐Madison


It now appears that milk prices will not peak as high this summer and fall as earlier predicted. Milk production in relation to domestic demand and exports is keeping milk prices lower. 

Last year’s hot weather and high feed prices kept milk production below year earlier for the months of August, September and October. Exports were also higher, resulting in a Class III price of $21.02/cwt. for October 2012 and $20.83/cwt. for November 2012. So far this year, the Class III price peaked at $18.52/cwt. in May, possibly the high for the year. Current Class III futures fall below $18/cwt. by September, and end the year below $17.00/cwt. 

This is despite record exports for the first six months of this year. January-June exports on a volume basis were a record, 9% higher than last year. On a total solids basis, June exports were equivalent to 16.5% of U.S. milk production. The U.S. gained world market share against major competitors. Exports through June for major competitors were up just 4% for New Zealand and lower by 11% for Argentina, 9% for the EU countries and 10% for Australia. For this six-month period exports were higher than a year ago except for dry whey being just 1% lower. Increases were 11% for butter and milkfat, 6% for cheese, 10% for nonfat dry milk/skim milk powder, 12% for whey protein concentrate and 15% for lactose.


Milk production

USDA estimated July milk production to be up 1.2% from a year ago for the 23 major dairy states; 1.1% for the U.S. However, a year ago the growth in milk production was slowing, and was up just 0.6% from the year before. 

For the most part, compared to a year ago, July milk production among the 23 reporting states shows a similar pattern as recent months, with lower or small increases in the West, and increases in the Northeast and Upper Midwest. Of the 23 states, just four had lower milk production in July versus a year ago, and all were in the West.

In the West, July milk production was 2% lower than a year ago in Arizona, whereas June production was unchanged. California’s production was 3.5% lower in July, compared to June being down just 1.1%. July production was down 1.1% in Idaho, compared to a slight increase of 0.2% in June. New Mexico did have an increase of 1.9% in July, compared to a 1.2% increase in June. Texas showed a strong increase of 5.3% in July, compared to an increase of 1.9% in June. 

In the Northeast, July production was up just 1.1% in New York (+1.2% in June). Pennsylvania’s production was up 1.2% (+2.4% in June). Michigan’s production was up 3.1% in July, compared to 3.7% for June.

In the Upper Midwest, July production was up 2.9% in Wisconsin in July, compared to an increase of 1.8% in June. Minnesota’s production was up 2.9% in July, compared to 2.2% in June. Iowa’s production was up a strong 8.6% in July, compared to 6.4% in June. 

In the Southeast, Florida’s July production was up 2.1% compared, to 1.5% in June. 

While margins, calculated as returns over feed cost, have fallen a little for the past two months due to lower milk prices, margins since March have been higher than a year ago. This, along with anticipated low feed prices this fall and winter may be encouraging an expansion in milk cow numbers. With USDA’s National Ag Statistcs Service (NASS) not reporting cow numbers since March, this is not known for sure. Milk cow numbers started to increase last November, continuing to rise through NASS’s last report for February of this year. 

While the increase in milk production per cow last year was up just 0.3%, it is unlikely that all of the 1.1% increase in July milk production this year was due entirely to more milk per cow. 

With milk production running below year-ago levels August through October of last year, increases in milk production for the remaining months of this year are likely to continue to be above 1%.


Product production, stocks

With higher milk production than a year ago, dairy product production was also higher. Compared to last year, June production of butter was 2.7% higher; American cheese 1.2% higher; and total cheese 1.4% higher. 

June 30 stocks were also considerably higher than a year ago. Butter stocks were burdensome, up 33.2%. American cheese stocks were 6.4% higher; and total cheese stocks 4.9% higher.

Domestic cheese sales are reported to be good. But, fluid (beverage) milk sales continue to perform at a lower level. Sales of traditional milk in June were 6.4% lower than a year ago. and year‐to‐date sales 2.9% lower. Organic fluid milk products continue to run higher than a year ago, with June sales up 5.8% and year‐to‐date sales up 3.1%.

Butter prices normally start to increase at this time of the year. But, with the high stocks butter prices have been on a decline since the March high of $1.70/lb. on the CME. Currently butter is $1.36/lb. During August on the CME 40‐pound cheddar blocks have been as high of $1.7975/lb. and are now $1.755/lb. Cheddar barrels have been as high as $1.7925/lb. and are now $1.735/lb. The strong exports have pushed nonfat dry milk prices in the $1.78-$1.80/lb. range in the West. Dry whey prices have been fairly steady in the 56¢-61¢/lb. range.


Price outlook

With cheese prices averaging a little higher than last month, and dry whey prices stable, the August Class III will be higher than the $17.38/cwt. July price to about $18.05/cwt. Despite lower butter prices, the higher nonfat dry milk price will increase the Class IV price from $18.90/cwt. in July to near $19.15/cwt. for August. Where prices go from here will depend a lot on milk production.

While current Class III futures show Class III prices falling below $18/cwt. by September and ending in December below $17/cwt., there is still a chance that prices could do better than this. Milk production is declining seasonally, and increases in milk production above a year ago are likely to be less than 2%. Schools are opening, which increases fluid milk consumption, and cheese and butter buyers need to start to build inventories to meet the strong seasonal sales period of Thanksgiving through Christmas. 

In addition, dairy exports are forecasted to remain strong through at least the end of the year. All of these factors ought to strengthen cheese prices in the weeks ahead. While my earlier prediction for the Class III price to reach $19/cwt. this fall now seems unlikely, a Class III price in the high $18’s/cwt. by October could still be possible.


Robert Cropp

University of Wisconsin‐Madison