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Cropp: July Dairy Situation and Outlook

While domestic sales and exports will be key factors as to where milk prices go for the rest of the year, the level of milk production is also a key factor, noted Bob Cropp, professor emeritus, University of Wisconsin-Madison. USDA’s release of June milk production showed an increase  of 1.6% over a year ago for the 23 reporting states, and an estimated increase of 1.5% for the U.S. This marks the third straight month of higher milk production compare to the same month year earlier. However a year ago increases in milk production began to decline  in May due to a widespread drought, with June production up just 1% and production actually below the previous year August through October. So we can expect increases in milk production for the remainder of the year to be at least 1.5% to 2%.
As of now, the range of possible milk prices is fairly wide. August and September weather in key dairy states is an important factor in milk production per cow and the component composition of the milk, which impacts dairy product yields. However, many of the modern dairy facilities enable dairy producers to minimize the effect of very hot and humid weather on the stress of cows. Later this fall dairy producers will be evaluating the harvesting reports of this year’s crops and projected cost of feed this winter and making decisions as to whether to reduce cow numbers, exit dairy entirely or to expand herd size. If increases in milk production stay below 2% for the reminder of the year, a Class III price reaching $19/cwt. by September or October is still possible. However, current Class III futures are not quite that optimistic.  Read more …
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