Milk 2009: First annual decline in 8 years

(Monday, Feb. 1, 2010)

U.S. dairy farmers cut milk production last year for the first time since 2001, as a milk-price crash prompted herd liquidation.

Milk production totaled 189.3 billion pounds in 2009, down 0.4 percent from 190 billion pounds in 2008, according to a monthly report from the U.S. Department of Agriculture. Western states led the decline, with milk production falling 4.6 percent in California and approximately 11 percent in both Arizona and Colorado.

The report is a bullish signal for milk prices, because world demand has picked up and U.S. dairy farmers are still culling cows to stem losses, said Alan Levitt, a Crystal Lake, Ill.-based market analyst who writes CME Group Inc.’s Daily Dairy Report.

“We started the year with 250,000 fewer cows, and it will take years before we can add 250,000 back,” Levitt said. “We may over-correct and milk supplies could be really tight in 2010.”

The milk production drop in 2009 was just the third annual contraction in the past 18 years, Levitt said. He projects an average Class III milk price of $17 per hundred pounds in 2010, an increase of almost 50 percent over $11.36 in 2009.