After months of uncertainty, the U.S. dairy industry finally saw an updated estimate of the domestic cow population on the November 1 USDA Milk Production report. The following chart illustrates those results, which indicated that producers had proven able to boost their herds during the first half of the year.

Indeed, the report stated the July milking herd at 9.242 million head, which topped the comparable 2012 result by 20,000. The numbers underwent the usual seasonal decline from that point. In fact, as the chart implies, the summer 2013 drawdown in dairy cow numbers not only exceeded the five-year norm, it was larger than that seen during the summer 2012 drought.

That is truly remarkable, especially when one considers the much improved weather, significantly improved pastures and relatively large decline in feed costs experienced from one year to the next.

Ultimately, the shift in cow numbers suggests dairymen have become surprisingly responsive to shifting milk prices. That is, lower feed costs and much more abundant forage seemingly did little to discourage producers from thinning their herds quite aggressively during summer, thereby leaving only the relative decline in milk prices as the likely factor driving the cutback. Actually, this conclusion fits well with producer behavior over the past 18 months.

As the chart shows, they cut their herds rather dramatically in response to the spring-summer 2012 drought. Conversely, they actively expanded their holdings in reaction to the big autumn spike in milk prices, then slowed that expansion early this year as dairy values tanked.

As a consequence, we strongly suspect they added to their herds through late spring, then cut back once again as dairy prices suffered a surprisingly extended decline into mid-August. The following chart depicting weekly milk cow slaughter offers some confirmation for these conclusions.

Note particularly the 2012-13 tendency for weekly slaughter totals to top the five-year average, which probably reflects producers’ more aggressive cycling of heifers into and older cows out of their herds.

Cow slaughter surged in January of this year, whereas the spring increases over 2012 rates seemingly reflect on the small nature of the latter rather than excessive rates for the former. Finally, observe the comparative reductions posted during October. The size and persistence of the decline strongly suggests producers are once again responding to the expansionary signals being sent by higher milk prices and lower feed costs.

A much improved hay situation also seems to point to increased herds this winter. Thus, resurgent output seems likely to undercut milk and product prices during the coming weeks.

The anticipated drop probably won’t be as sharp as that that occurred in late 2012 and early 2013, due in part to the simple fact that recent highs fell well below those posted at the same time last year.

Conversely, persistently low feed costs may extend the anticipated slump in milk prices beyond the time frame of the late 2012-early 2013 slide. Indeed, we believe the dairy complex is doomed to a sustained downward trend through much of 2014 unless poor growing conditions depress crop production once again.