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Milk production growth continues

Progressive Dairyman Editor Dave Natzke Published on 20 November 2017

October 2017 U.S. milk production grew 1.4 percent compared with the same month a year earlier, picking up the pace after slowing somewhat in September, according to the USDA’s latest Milk Production report.

At 1.5 percent, year-over-year growth in the 23 major dairy states was also higher, led by gains of 5 percent or more in Arizona, Colorado, Texas and Utah. The increase came despite a 1,000-head decline in cow numbers from September.

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USDA: October recap

Reviewing the USDA estimates for October 2017 compared with October 2016:

• U.S. milk production: 17.81 billion pounds, up 1.4 percent

• U.S. cow numbers: 9.4 million, up 65,000 head

• U.S. average milk per cow per month: 1,894 pounds, up 12 pounds

• 23-state milk production: 16.74 billion pounds, up 1.5 percent

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• 23-state cow numbers: 8.735 million, up 67,000 head

• 23-state average milk per cow per month: 1,917 pounds, up 13 pounds

Cow numbers

Nationally, October milk cow numbers were down 1,000 head from September’s revised estimate, but still 65,000 head more than October 2016.

Compared with a year earlier, the largest growth was in Texas (+25,000 head), Arizona and Colorado (each +9,000 head), and New Mexico (+8,000 head). California (-13,000 head) and Minnesota (-4,000 head) led decliners.

Milk per cow

Changes in monthly milk output per cow showed geographic diversity. Compared with a year earlier, individual cow production declined in most Western states – New Mexico, California, Oregon, Idaho, Washington and Utah – along with Florida and New York. In contrast, milk output per cow rose 2 pounds per day in Illinois, Minnesota and Virginia, and more than 1 pound per day in Arizona, Indiana, Michigan, Ohio and Wisconsin.

Milk production

On a percentage basis, October milk production was up 6.6 percent in Arizona, 5.7 percent in Colorado, 5.3 percent in Texas and 6.2 percent in Utah.

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Wisconsin production was up 2.3 percent on increased output per cow; Idaho production was up just 0.2 percent, despite the presence of 4,000 more cows. Fewer cows and less production per cow led to declines of 1.5 percent and 2.4 percent in California and Oregon, respectively.

Another temporary Northeast milk dumping request granted

Although October milk production was virtually unchanged in much of the Northeast, Federal Milk Marketing Order (FMMO) #1 Market Administrator Erik Rasmussen has again authorized temporarily pooling milk disposed or “dumped” at farm or other non-plant locations, this time through Jan. 8, 2018.

In late October, Dairy Farmers of America Inc. (DFA) requested pool handlers be allowed to temporarily dispose of surplus milk for the period of Nov. 22, 2017, to Jan. 8, 2018. DFA’s request cited the region’s milk supply and available plant capacity, as well as holiday plant closings.

Land O’Lakes Inc. (LOL), which subsequently asked that the period begin a week earlier, on Nov. 15, said multiple plants have announced shut downs for the holidays, effectively removing processing capacity during the period.

In addition to DFA’s request and LOL’s requested extension, cooperative handlers Agri-Mark Inc., Maryland and Virginia Milk Producers Cooperative Inc., St. Albans Cooperative Creamery Inc. and Upstate Niagara Cooperative Inc. submitted comments acknowledging the potential for having milk supplies in excess of available plant processing capacity during the upcoming holiday period.

The volume of milk pooled on the Northeast order has set eight all-time record monthly volume records during the first nine months of 2017.

Temporary dumping authorizations were approved for the periods of Nov. 22, 2016, to Jan. 9, 2017; March 1 to May 31; and June 1 to Aug. 31. During those periods, the only reported requests seeking authorization for dumping raw milk at a farm was caused by snow storm milk pickup complications.

For the January to September 2017 period, milk volumes reported in the Northeast marketing area’s monthly statistical reports under Class IV Minimum Price Class (often referred to as dumped milk) totaled nearly 150.9 million pounds. The total represents milk delivered to a plant, processed to some extent and then discarded for any reason.

USDA outlook

According to the USDA’s latest Livestock, Dairy and Poultry Outlook report, milk production is flattening out as growth in milk per cow slows and cow numbers start to decline. 2017 production is now forecast to be up 1.6 percent from 2016. Cow numbers may build next year, but continued slower growth in milk per cow will limit 2018 total milk production growth to 1.8 percent.

Despite the slowdown in milk production, prices are weaker. USDA projections put the 2017 all-milk price at $17.70 per hundredweight (cwt), falling to about $17.35 per cwt in 2018. The USDA-projected 2017 Class III price is about $16.20 per cwt, dipping to $15.95 per cwt in 2018. The projected 2017 Class IV price is $15.20 per cwt, weakening to $14.65 per cwt in 2018.

High stocks in the U.S. and the EU continue to overhang the market, especially for products with high skim-solids content. EU intervention stocks of skim milk powder (SMP) have been high since the last half of 2016, standing at 800 million pounds at the end of September 2017. Most of the stocks are more than a year old. The EU is considering options for disposing of the SMP stocks at the same time that prices have fallen below intervention levels.

Cropp-Stephenson outlook

Mark Stephenson, director of dairy policy analysis at the University of Wisconsin – Madison, and Bob Cropp, dairy economics professor emeritus, summarized the dairy situation in their monthly podcast.

While October’s 1.4 percent increase in milk production seems modest, it comes on top of last year’s strong October (up 2.5 percent from October 2015), strength that continued into the fourth quarter of the year, they said.

Growth in production isn’t limited to the U.S., with all other major exporting regions increasing in production. And, combined with new challenges facing U.S. export markets, both Cropp and Stephenson lowered their price expectations. The export challenges include the biggest U.S. customer, Mexico, which is sourcing more milk powders elsewhere.

Cropp sees the Class III price to be about $16.70 per cwt in November, dropping into the $15s in December and then into the $14s through the first half of 2018.

“The unfortunate thing is we’re looking at another price drop over the next few months,” Stephenson said. “There’s enough product being made, and we aren’t moving as much product as we hoped.”

Cropp and Stephenson are slightly more optimistic than current futures prices for the latter half of 2018.

“If prices get as low as futures are saying in the first quarter, I think it will speed up cow culling,” Cropp said. If that happens, USDA’s forecast of a 1.8 percent production growth in 2018 won’t materialize.

Margins start November weaker

Dairy margins declined during the first two weeks of November, although weaker milk prices were offset somewhat by lower projected feed costs, according to Commodity & Ingredient Hedging LLC. Margins through the first half of 2018 are below breakeven, while deferred third-quarter 2018 margins are projected slightly above breakeven.

Milk prices remain under pressure from increased output both in the U.S. and other major exporting countries, as global demand is having trouble keeping up with rising supply. EU production during September 2017 totaled 27.2 billion pounds, up 4.1 percent from September 2016 and the largest monthly increase in year-over-year growth since March 2016. Milk production in New Zealand also started to recover after cold, wet conditions made for a poor start to their spring flush. October milk production was up 2.7 percent compared with October 2016.

Feed prices moderated further, with corn futures dropping to new lows following a bearish November World Ag Supply and Demand Estimates report. The soybean balance sheet was relatively neutral, and soybean meal prices held steady over the first two weeks of November.

Cutter cow prices

National average fourth-quarter 2017 cutter cow prices are forecast to weaken, in a range of $56 to $60 per cwt. That would result in a 2017 average of just $64.99 per cwt, down from $70 per cwt in 2016 and $99.56 per cwt in 2015. Little if any improvement is forecast for 2018, with cutter cow prices expected to remain in a range of $58-$67 per cwt for the entire year.  end mark

Dave Natzke
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