Cropp: June Dairy Situation and Outlook

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The growth in U.S. milk production has been relatively low, despite higher milk prices, lower feed costs and favorable returns. And, although milk production picked up some in April and May – up 1.2% and 1.4% from the year before, respectively – first quarter 2014 production was up just 1%, and fourth quarter 2013 milk production was just 0.3% higher than the year before.

On a daily basis, May milk production is increasing seasonally only slightly, just 0.1% higher than April.

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% 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 rise last December.

Of the 23 major states surveyed by USDA, those leading in increases in milk production were Texas, up 10.1%; Colorado, up 9.5%; Kansas, up 7.0%; and South Dakota, up 5.9%. California’s production was up 1.0%; Idaho was up 0.5%; New Mexico was up 1.4%; and Arizona was up 3.9%. Milk production was up 1.2% in Iowa, but flat for Wisconsin.

Just five states had lower May milk production than a year ago: Minnesota, down 0.1%; New York, down 0.3%; Ohio, down 2.5%; Pennsylvania, down 1.4%; and Vermont, down 0.4%. 

 

Dairy product summary

April butter production was 4.9% lower than a year ago. With good domestic sales and April exports 105% higher than a year ago, stocks are rather tight. The latest dairy stock report is for April 30. Butter stocks were 43.8% lower than a year ago. As a result, butter prices have been well above $2/lb. all of May and thus far in June. As of June 19, CME butter was $2.235lb.

April nonfat dry milk production was 1.2% lower than a year ago, and April exports were 4% lower. April 30 nonfat dry milk stocks were 15.2% higher than a year ago, the most stocks since January of 2010. Nonfat dry milk was above $2.00/lb. all year until mid-May, but is now $1.825/lb.

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

April total cheese production was 2.2% higher than a year ago, with cheddar production up just 1.0%. As with butter, domestic sales have been good, and April exports were 32% higher than a year ago. April 30 total cheese stocks were 7.6% lower than a year ago. CME cheese prices have remained strong, with 40-lb. cheddar blocks above $2/lb. all of May and thus far in June. Barrel cheese average $2/lb. in May and about $1.96/lb. thus far in June. As of June 19, cheddar blocks were at $2.00/lb., and cheddar barrels had increased to $2.005/lb.

April production of dry whey was 12.8% lower than a year ago, while exports 14% higher. As a result, April 30 stocks of dry whey were relatively tight – 18.8% lower than a year ago. The result is higher dry whey prices, now trading at 66¢/lb., and giving strength to the Class III price. The Class III price had peaked in April at $24.31/cwt.; declined to $22.57/cwt. in May; and will be a little lower in June, near $21.35/cwt.

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 U.S. 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%, with the number of  milk cows averaging  0.4% higher for the year, and milk per cow increasing 2.1%. 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% 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/cwt, until October or November, ending the year around $18.75/cwt. Existing Class III futures are even higher than this. It now looks like the Class III price could average over $21/cwt. for the year, compared to $17.99/cwt. last year.

The Class IV price is also expected to decline as we move through the year, but could stay above $20/cwt. until November or December, and could average over $21/cwt. for the year, compared to $19.05/cwt. last year.

Looking ahead to first quarter of 2015, both the Class III price and Class IV price may average in the mid to high $17s to low $18s/cwt. 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 dairy export levels.


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