Cropp: October situation and outlook
University of Wisconsin‐Madison
The severe drought across much of the U.S. continues to impact milk production and, as a result, dairy product prices and milk prices continue to strengthen.
USDA revised its August milk production from being 0.4% lower to no change from a year ago, but September’s production was estimated to be 0.5% lower.
Milk cow numbers, which started to decline last May, had fallen by 76,000 head by September and were 6,000 head below a year ago.
Milk per cow, which was 0.2% lower than a year ago in August, was 0.4% lower in September.
For the remainder of this year and going into next year, not only high feed costs, but the availability of quality forages in many cases will continue to reduce cow numbers and either decrease or slow any increase in milk per cow with the greatest impact in the West. Looking at some Western states declines in September milk production compared to a year ago were: Arizona, 5.4%; California, 3.9%; New Mexico, 4.5%; Texas, 4.7%; and Washington, 1.9%. Each of these states had a decrease cow numbers from August, and each had less milk per cow. Idaho was the exception, with an increase of 2.3% in milk production, due to more milk per cow.
These milk production changes compare to increases in milk production for most Northeast and Upper Midwest states. In the Northeast, September milk production compared to a year ago was up 2.3% in New York; 2.8% in Michigan; and 2.2% in Ohio. However, Pennsylvania’s production was down 2.7%, fwith 0.7% fewer cows and 1.9% less milk per cow. In the Upper Midwest, milk production was down 0.3% in Iowa, with 2,000 more cows, but 1.1% less milk per cow. Minnesota’s milk production was up 0.8%, the result of 0.2% fewer cows, but 1.0% more milk per cow. Wisconsin had 0.6% more cows and 2.3% more milk per cow, resulting in 2.9% more milk.
In the Southeast, milk production was up 3.2% in Florida, the result of 2.5% more cows and 0.8% more milk per cow.
We can expect cow numbers to continue to decline well into next year, as some dairy producers exit dairying completely and others reduce the size of their dairy herd in response to high feed prices and availability of quality forages. Dairy cow slaughter this year is about 7% higher than a year ago, with slaughter in recent weeks being as much as 10% higher.
High prices for corn and protein sources will dampen increases in milk per cow. USDA is projecting milk production for this year to be up 1.7% (up 1.4% adjusted for leap year). Milk production for the first quarter of this year was 4% higher than a year earlier (adjusted for leap year). So we can expect milk production for the first quarter of next year to run as much as 2% or more below these production levels. With a decline in cow numbers and a relatively small increase in milk per cow, USDA is projecting almost no increase in 2013 milk production.
Domestic sales of both butter and cheese continue to show growth despite higher wholesale prices. But, fluid (beverage) milk continues to decline, with August sales 0.5% lower than a year ago and year‐to‐date sales down 1.6%.
Despite rising prices, dairy exports continue to increase over the record exports last year. With the help of CWT, August exports of cheese were 30% higher, with year‐to‐date exports 21% higher. August exports of nonfat dry milk were 18% higher with year‐to‐date exports 9% higher. Whey protein concentrate exports were 28% higher for August, and year‐to‐date exports 15% higher. But August dry whey exports were 27% lower and year‐to‐date exports 9% lower. Butter exports continue to decline, with August exports down 45% and year‐to‐date exports down 22%.
Compared to a year earlier August production of butter was 3.5% lower; nonfat dry milk was 7.8% lower. But, cheese production was higher, with American cheese up 4.5%, and total cheese 2.6% higher. Despite higher cheese production, favorable domestic sales and exports helped to lower stocks. As of Aug. 31, stocks of American cheese were 5.0% lower than a year ago, and total cheese stocks 5.8% lower. With heavier butter production earlier in the year, butter stocks were still 23.4% higher than a year ago, but not excessive, considering the strong sales period during the upcoming holidays. Both nonfat dry milk stocks and dry whey stocks were lower, down 15.3% and 37.1%, respectively.
Lower milk production, favorable domestic sales and exports, tighter stocks and an anticipated fairly tight supply‐demand situation going into 2013 are all factors that have strengthen dairy product prices and milk prices. On the CME, butter averaged $1.88/lb. in September and will average about $1.90/lb. for October. Butter prices will likely decline some once holiday orders are filled, and could fall to around $1.80/lb. by year’s end, but stay in the $1.75 to $1.80/lb. range most of next year. West nonfat dry milk price averaged $1.5339/lb. in September and will average close to the same for October. Nonfat dry milk prices could stay above $1.50/lb. through April of next year, and then gradually soften to near $1.35/lb. by year’s end. West dry whey averaged 57.55¢/lb. in September and will average about $0.60 for October. Dry whey prices could stay in the high $0.50s for the first half of next year and soften to the low 50¢/lb. by year’s end. On the CME, cheddar barrel cheese averaged $1.878/lb. in September and will average about $2/lb. for October; 40‐pound cheddar blocks averaged $1.9245/lb. in September and will average about $2.05/lb. for October. Cheese prices above $2.00/lb. could well experience some sales resistance. After the holidays, cheese prices will likely soften but could stay in the $1.80-$1.70/lb. range for the first half of next year.
The Class III price was $19/cwt. in September and will reach $21/cwt. for October and perhaps November, before declining slightly in December. But, a Class III price at $19/cwt. or higher for the first quarter of next year and staying above $18/cwt. for the remainder of the year now appears quite possible.
The Class IV price was $17.41/cwt. in September and will be near $18.75/cwt. for October, perhaps going above $19/cwt. by November. A Class IV price of near $18/cwt. for the first half of next year appears quite possible before declining towards year’s end. Some are forecasting even higher prices.
Higher prices are possible, but all of these price forecasts will no doubt be revised depending upon any changes in expected levels of milk production, domestic sales and exports for the months ahead. The level of exports will not only depend upon U.S. dairy product prices in comparison to world prices, but the also the extent to which U.S. dairy companies with tighter supplies will attempt to maintain international customer commitments. U.S. exports could also be impacted by how the run-up in food prices, particularly in developing countries affects their purchasing of dairy products. There also exists the possibility of deepening of the European debt crisis which would have worldwide implications. And we know that milk prices could be impacted by weather conditions and how it affects crop production next year, not only in the U.S., but in other major exporting and importing countries. Thus, several factors could dramatically change final milk prices for next year.