Cropp: November Dairy Situation and Outlook
By Bob Cropp, Professor Emeritus
University of Wisconsin Cooperative Extension
University of Wisconsin-Madison
USDA’s Nov. 19 milk production report shows U.S. September milk production up just 0.9%, and October production up 1.0%. These increases are considerably lower than the 2.4% increase back in August.
A decline in milk cow numbers, as well as a relatively small increase in milk per cow, explains this lower increase. Milk cow numbers were 9.222 million head in January. We don’t have data for the months of March through June, but July cow numbers were 9.242 million, or 20,000 more than January. But, cow numbers have been declining since July, with the October total at 9.202 million, down 40,000.
Dairy cow slaughter year-to-date compared to a year ago is up just 1.8%. The January cattle inventory report showed more than enough dairy replacements to grow the dairy herd. There was no July 1 cattle report, so we don’t know how the number of replacements may have changed. Reports are that with relatively high beef prices some replacements went into feedlots. But, of the 23 reporting states, only 8 had fewer milk cows in October than a year ago; 3 had no change; with 12 having more cows. Only five states reduced the number of cows in October from September; 16 had no change; and just 2 had more cows.
Milk per cow in October was just 0.8% higher than a year ago. Since March, margins (returns over feed costs) have been much improved over a year ago. With improved margins early predictions had milk cow numbers increasing and higher increases in milk per cow, but the USDA production report showed otherwise.
October milk production compared to a year earlier showed relatively strong increases in Kansas (+6.1%); Indiana (+5.7%); Florida and Utah (+5.0%); Arizona (+4.1%); and both Iowa and Texas (+3.8%). Production was up just 1.0% for California, and Idaho had its second consecutive decline in October, down 2.7%. New Mexico production was down 0.6%. Milk production had been increasing all year in Minnesota, but October production was down 0.3%. Wisconsin’s production was just 0.9% higher. Production was up 2.8% in New York, but up just 0.2% in Pennsylvania. Ohio experienced a 1.8% decline.
Exports have been a positive factor supporting dairy product prices all year. Exports during September compared to a year earlier were up by 40% for cheese, 36% for nonfat dry milk, 41.7% for dry whey, 2% for lactose and 720% for butter. On a total solids basis, exports were equivalent to 17.5% of September milk production, and for the January through September period 15.5% of milk production compared to 13.5% last year. The year will finish with exports at a new record high.
Compared to September a year ago, butter production was 1.9% lower; total cheese production 2.3% higher; but cheddar cheese production was 1.2% lower. Nonfat dry milk production was 9.6% lower as more milk went into skim milk powder production for export. The production of skim milk powder was up 24.3%.
Sept. 30 stocks of butter and cheese, while higher than a year ago, declined for the fourth straight month. Butter stocks were 19% higher, and American cheese stocks and total cheese stocks both were 3% higher. These stock levels are manageable to fulfill buyer needs for the upcoming holiday season.
Starting in October and into November, butter and cheese buyers were more active building inventories for the strong season sales period during the upcoming holidays. The increased buyer activity strengthened prices into early November. CME butter was $1.465/lb. on Oct. 21 before prices started to increase and as of Nov. 19, the price was $1.65/lb. CME cheddar blocks were $1.765/lb. on Oct. 4 before starting to increase reaching $1.9025/lb. on Nov. 1 before starting to decline again on Nov. 8. As of Nov. 19 cheddar blocks were $1.82/lb. CME cheddar barrels were $1.7625/lb. on Oct. 10 before starting to increase reaching $1.87/lb. on Nov. 1 before starting to decline again on Nov. 6. As of Nov. 19 cheddar barrels were $1.755/lb. While cheese prices had dropped back some in recent trades these are still relatively good cheese prices.
These higher dairy product prices pushed up farm milk prices. The November Class III price will be near $18.80/cwt., compared to $18.22/cwt. in September. Nonfat dry milk prices continue to strengthen and with higher butter prices the November Class IV price will be near $20.60/cwt. compared to $20.17/cwt. in September.
Once holiday orders are filled, butter and cheese prices will likely decline lowering the Class III price. The December Class III price could fall in the $17.80-$17.90/cwt. range. But, higher nonfat dry milk prices could keep the December Class IV price near $20.60/cwt.
Dairy product prices are likely to decline further going into January and the first quarter of 2014. How far prices will decline will hinge on the level of milk production and dairy exports. While milk prices will decline, the lower feed costs could maintain margins favorable for increasing milk production. The question is whether the increase in milk production will pick up, with cow numbers increasing again and better milk per cow.
Dairy exports are not expected to decline much in 2014. But, with a likely increase in milk production the Class III price could fall below $17.00/cwt. during the first quarter of 2014 and average in the low $17s for the first half of the year. The continued export level of nonfat dry milk could keep the Class IV price in the high $19s first quarter and above $18.00/cwt. for the reminder of the year. Current Class III dairy futures are not as optimistic, settling in the high $16s first half of the year and in the low $17s for the second half. Class IV dairy futures are settling in the high $19s first quarter and above $18.00/cwt. for the remainder of the year.