Dairy Situation and Outlook, July 21, 2008

Milk production continues to run above year ago levels due to additional milk cows and more milk per cow. June milk production for the 23 reporting states was 3.4 percent above a year ago and the second consecutive monthly increase of more than 3 percent. While cow numbers continue to increase month-to-month and were1.9 percent higher in June than a year ago, increases in milk per cow of only 1.5 percent lessens the increase in total milk production and has helped to maintain higher milk prices.

June milk production compared to a year ago for the five top dairy states that produce more than half of U.S. milk production was:  California +2.3 percent, Wisconsin +1.6 percent, New York +3.7 percent, Idaho +8.4 percent and Pennsylvania + 1.9 percent. Compared to a year ago cow numbers were up 2.3% for California, 0.4% for Wisconsin, no change for New York, up 8.3 percent for Idaho and 0.5 percent lower for Pennsylvania.

Leading increases in June milk production over a year ago were: Texas 16.3 percent, New Mexico 10.2 percent and Kansas 8.3 percent. Seven of the 23 states reported less milk than a year ago: Florida -1.6 percent, Indiana -2.1 percent, Iowa – 0.6 percent, Kentucky -2.9 percent, Missouri -2.2 percent, Oregon – 5.3 percent and Virginia 1.4 percent.

Dairy cow slaughter has increased over a year ago as dairy producers react to high feed prices. In recent weeks cow slaughter has been running 6 to 9 percent above a year ago. However, there are ample number of dairy replacements to maintain the size of the dairy herd. The fifth round of CWT was just announced and will remove 25, 474 cows and 358 bred heifers during 4th quarter. We could see cow numbers starting to decline by year’s end and that will slow the increase in milk production. For the year, milk production may be up around 2 percent.

High prices for beverage milk and cheese appears to have slowed sales. May retail prices for all dairy products were 11 percent higher than a year ago compared to 5.1 percent for all food. Information from USDA indicates that beverage milk sales from January through May were down 0.8 percent from a year ago, adjusted for calendar year composition. Butter sales have been good with January through April sales 21.8 percent higher than a year ago. But, there is a concern with cheese sales. Compared to a year ago, January through April sales of American cheese was up only 1.4 percent and sales of other cheese varieties were 0.6 percent lower.

Butter production continues to run well above a year ago with May production up 15.8 percent. But, cream supplies for butter production have tightened as ice cream makers demand more cream. With good butter sales as well as exports May 31st butter stocks were 2.7 percent lower than a year ago, but 10.9 percent higher than the 5-year average for this date. Butter prices remain strong around $1.53 per pound.

American cheese production is also above a year ago with April production 4.0 percent higher and May 3.5 percent higher. May 31st American cheese stocks were still lower than a year ago, down 1.24 percent and slightly below the 5-year average for this date. May 31st total cheese stocks were 1.3 percent lower than a year ago. Cheese prices have weakened from their highs in early June of $2.17 per pound for cheddar barrels and $2.1775 per pound for 40-pound cheddar blocks. By July 9th, barrels had fallen to $1.82 and blocks to 1.895. But, since then prices have recovered some with barrels at $1.97 and blocks $2.00 as of July 18th. Whether prices will hold at these levels with both American cheese production and milk production running over 3 percent higher is uncertain.

Dry whey stocks are well above a year ago with May 31st stocks up 52.2 percent. Exports are also lower than a year ago. Dry whey prices are at $0.26 per pound. A year ago, dry whey prices were $0.73 per pound and added strength to the Class III price.

May 31st nonfat dry milk stocks were 125.4 million pounds. While stocks are 36.3 percent higher than a year ago this is a relatively low level. Nonfat dry milk exports have been favorable. Nonfat dry milk prices have strengthen from earlier in the year and are around $1.50 per pound, but were running at $2.25 per pound a year ago giving strength to the Class IV price.

The June Class III price was $20.25 and the Class IV price $15.92. With cheese prices weaker the July Class III price will be around $18.20. Higher butter and nonfat dry milk prices will increase the July Class IV price to around $16.95. Cheese prices could show some weakness in August, especially if milk production continues to increase 3 percent or more, but recover some September through early December. Nonfat dry milk prices and butter prices could improve some as well. Class III prices August to year’s end could range $18.00 to $19.50 and Class IV prices increase to and stay above $17.00.

by Bob Cropp, Professor Emeritus
UW Cooperative Extension & UW-Madison