Cow Numbers to Slowly Increase

Volume 138, No.52, Friday, June 20, 2014

Despite higher milk prices and lower feed cost resulting in favorable returns over feed cost the growth in milk production has been relatively low. Last quarter of 2013 milk production was just 0.3 percent higher than the year before.

First quarter of this year production was up just 1 percent. Production picked up some in April and May being up 1.2 percent and 1.4 percent respectively. Milk production is increasing seasonally only slightly with May production 0.1 percent higher than April on a daily basis.

The increase in milk production is the result of more milk cows and more milk per cow. Cow numbers are increasing as dairy producers reduce culling as well as adding cows.

Cow slaughter thus far this year is 11 percent lower than a year ago. Cow numbers for May were 10,000 head higher than April and have increased by 50,000 head since starting to increase last December. Of the 23 reporting states just five states had lower May milk production than a year ago—Minnesota 0.1 percent, New York 0.3 percent, Ohio 2.5 percent, Pennsylvania 1.4 percent and Vermont 0.4 percent.

States leading in increases in milk production were Texas up 10.1 percent, Colorado up 9.5 percent, Kansas up 7.0 percent and South Dakota up 5.9 percent.

California’s production was up 1.0 percent, Idaho up 0.5 percent, New Mexico up 1.4 percent and Arizona up 3.9 percent. Milk production was up 1.2 percent in Iowa but flat for Wisconsin.

April butter production was 4.9 percent lower than a year ago. With good domestic sales and April exports 105 percent higher than a year ago, stocks are rather tight. The latest dairy stock report is for April 30th. Butter stocks were 43.8 percent lower than a year ago.

As a result, butter prices have been well above $2 per pound all of May and thus far in June.

As of June 19 CME butter was $2.2350 per pound. April nonfat dry milk production was 1.2 percent lower than a year ago and April exports 4 percent lower. April 30 nonfat dry milk stocks were 15.2 percent higher than a year ago, the most stocks since January of 2010. Nonfat dry milk was above $2.00 per pound all year until mid-May and is now $1.8250.

The Class IV price was $22.65 in May. Higher butter prices will more than offset lower nonfat dry milk prices increasing the June Class IV price to near $22.85.

April total cheese production was 2.2 percent higher than a year ago with Cheddar production up just 1.0 percent. As with butter domestic sales have been good and April exports 32 percent higher than a year ago. April 30 total cheese stocks were 7.6 percent lower than a year ago.

CME cheese prices have remained strong with 40-pound Cheddar blocks above $2 per pound all of May and thus far in June. Barrel cheese averaged $2 per pound in May and about $1.96 thus far in June. As of June 19, Cheddar blocks were at $2.00 per pound and Cheddar barrels had increased to $2.0050 per pound.
April production of dry whey was 12.8 percent lower than a year ago and exports 14 percent higher.

As a result April 30 stocks of dry whey were relatively tight being 18.8 percent lower than a year ago. The result is higher dry whey prices now trading at $0.66 per pound and giving strength to the Class III price. The Class III price had peaked in April at $24.31, declined to $22.57 in May and will be a little lower in June near $21.35.

While dairy exports have been at record levels they are likely to soften some the last half of this year.
World milk production has improved and world prices of dairy products have declined considerably since the beginning of the year reducing the price competitiveness of US dairy products on the world market. But, exports could still set a record for the year.

The growth in milk production is expected to increase for the last half of the year as milk cow numbers increase and milk per cow continues to improve. USDA’s latest dairy forecast has milk production for the year increasing 2.4 percent due to the number of milk cows averaging 0.4 percent higher for the year and milk per cow increasing 2.1 percent.

But, the increase in the number of milk cows and increases in milk per cow will need to strengthen for the remainder of the year in order to reach a 2.4 percent increase in total milk production for the year.

No sharp decline in milk prices like what has occurred at times in the past is anticipated. Butter and cheese sales are anticipated to remain favorable.

Dairy stocks will build this summer and early fall, but not to levels that will put a lot of downward pressure on prices. Dairy exports could soften some for the last half of the year. The growth in milk production will pick up.

All of these factors indicate a slow decline in milk prices. The Class III price may not fall below $20 until October or November and end the year around $18.75. Existing Class III futures are even higher than this.

It now looks like the Class III price could average over $21 for the year compared to $17.99 last year. The Class IV price is also expected to decline as we move through the year but could stay above $20 until November or December and could also average over $21 for the year compared to $19.05 last year.

Looking ahead to first quarter of 2015 the both the Class III price and Class IV price may average in the mid to high $17s to low $18’s.

But, so much can happen between now and then to change this forecast, including how this year’s crops turn out and resulting feed costs this fall and winter as well as the level of dairy exports.

Dr. Bob Cropp is the Professor Emeritus at the University of Wisconsin-Madison


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