Cropp: April Dairy Situation and Outlook
By Bob Cropp, Professor Emeritus
University of Wisconsin Cooperative Extension
University of Wisconsin-Madison
Milk production continues to grow well above a year ago. USDA’s April 19 milk production report showed March milk production for the 23 reporting states up 4.3%, and an estimated 4.2% for the U.S.
Milk production at this level continues to be a depressing factor on milk prices. Both more milk cows and above-normal increases in milk per cow are to blame for this strong increase in milk production. U.S. milk cows were estimated 0.9% higher than a year ago, and milk per cow 3.2% higher. Milk cow numbers which have increased every month starting back in October of 2010 increased another 12,000 head in March.
Slaughter cow prices have been attractive. Nevertheless, cow slaughter through March was just slightly higher than last year. And, with more than an ample supply of dairy replacements, it is easy to not only maintain cow numbers, but to increase them.
Milk production is exceptionally high in all Western states. Compared to a year ago, March production was up 6.6% for Arizona; 6.2% for California; 7.1% for Colorado; 3.3% for Idaho; 5.3% for New Mexico; 5.7% for Texas; 7.8% for Utah; and 4.5% for Washington. Each state added cows and had very good milk production per cow. California, for example, had 25,000 more cows than a year ago, and milk per cow was up 4.7%. These 8 Western states added a total of 73,000 cows over a year ago.
In the Northeast, milk production was 0.6% lower for Pennsylvania, and the only one of the 23 states with less milk. Pennsylvania had reduced cow numbers by 3,000 head, and milk per cow was unchanged. Cow numbers were unchanged for New York and milk production was up 3.1%. Ohio had 1,000 more cows and milk production was up 3.4%. But, Michigan added 11,000 cows and, with milk per cow up 4.2%, it had 7.3% more milk.
In the Upper Midwest, Wisconsin had 3,000 more cows and a 4.2% increase in milk production. But, milk cows were 4,000 fewer for Minnesota and 5,000 fewer for Iowa. But, with good increases in milk per cow, milk production was still 2.1% higher for Minnesota and 1.8% higher for Iowa.
This strong increase in milk production is straining the capacity of manufacturing plants in the West and Upper Midwest. As a result, some dairy cooperatives in the West have asked their producers to reduce milk production, and are paying a substantially lower price for a portion of the milk of those producers who don’t.
More milk means an increase in dairy product production and the building of dairy stocks. Also sluggish fluid (beverage) milk sales means more of the milk production needs to be used for manufactured dairy products. Fluid milk sales declined 1.7% last year and sales show further decline this year, with January sales 2.7% lower. Compared to a year ago, and adjusted for days, February butter production was up 10%; cheddar cheese up 2.5%; total cheese up 2.6%; dry whey up 3.4%; and nonfat dry milk, up 49.3%. End of February stocks of butter were up 20.5%; total cheese up 8.8%; dry whey up 0.8%; and nonfat dry milk, up 58.7%.
Dairy exports are important in moving increased dairy product production overseas. Dairy exports were a record last year accounting for 13.3% of U.S. milk production on a total milk solids basis and added real strength to dairy product prices. USDA forecasts exports to be lower this year, with exports on a milk-fat basis down 11.6% due mainly to less butter exports, and down just 3.8% on a skim-solids basis due to continued favorable nonfat dry milk/skim milk powder exports. Compared to last year, exports for the first two months showed nonfat dry milk/skim milk powder up 5%, cheese up 3%, and lactose up 2%. But, exports of whey proteins were 2% lower and butterfat exports 37% lower.
With more milk, more dairy product production and more stocks, dairy product prices have been depressed. CME butter during April ranged from $1.425-$1.455/lb. and currently is at $1.4125/lb. CME 40-pound cheddar blocks ranged from $1.4875-$1.51/lb., and currently is at $1.51/lb.. Dry whey, which was near 70¢/lb. in the last quarter of 2011 is now in the range of 48¢-55.25/lb. And nonfat dry milk, which was above $1.60/lb. last summer is now in the $1.17-$1.30/lb. range.
Lower dairy product prices results in lower milk prices. The March Class III price was $15.72/cwt., compared to $19.40/cwt. a year ago. The Class III price for April will also be near $15.70/cwt. The March Class IV price was $15.35/cwt. compared to $19.41/cwt. a year ago. The Class IV price for April will be lower, near $14.85/cwt..
With lower milk prices, high feed costs and favorable cow slaughter prices, one would expect the growth in milk production to slow down and add strength to milk prices for the second half of the year. How weather impacts crop conditions and milk per cow this summer will also be an important for what milk prices do the second half of the year.
Current dairy futures show a very modest price recovery. Class III futures fall to a low of $14.75/cwt. for June, don’t reach $16/cwt. until September, and remain in the low $16’s for the remainder of the year.
Class IV futures are below $15/cwt. through July, and only peak at $16.15/cwt. for November. A stronger price rally than this will require a continued modest growth in domestic sales, relatively strong dairy exports and slowing down the growth in milk production closer to 2%. But, with the continued increase in milk cow numbers and above-normal increases in milk per cow, the probability is not good for milk prices to end up a lot better than what current milk futures show.
University of Wisconsin-Madison