The US milk cow herd has expanded by 50,000 head from last December to this June. Each month has registered a small gain, the biggest coming in March with an 18,000 head increase. The latest reported month, June, had the smallest increase of only 4,000 cows. Milk production during the April-June quarter was up 1.8% from a year earlier, boosted by a 1.0% improvement in milk cow productivity. Texas accounted for half the increase in cow numbers. New Mexico, Arizona, Colorado, and Utah herd expansion added another 21,000 head. Outside of this region, only New York (up 4,000 cows) posted an increase of more than 2,000 head. California reduced its milk cow population by 6,000 from December to June, with a 3,000 head decline in June.

The increase in the milk cow herd is supported by 4.754 million dairy heifers on hand at the start of the year that were intended to replace or expand the existing dairy herd. Although this number was down 60,000 head from the beginning of 2016, it was still the second highest dairy heifer inventory going back to the mid- 1980s. It has been the case since 2010 that when dairy heifer replacement inventories at the beginning of the year are at, or above 4.6 million head the milk cow herd increases during the ensuing year.

Milk prices relative to feed costs have been declining so far this year, even though the absolute level of milk prices relative to feed costs is higher than most years since 2011. The declining trend in the milk-feed price ration seems to setting a pattern for the rate at which the milk cow herd has been expanding this year. This raises some questions about how much more expansion will be seen in the dairy cow herd during the second half of the year.

Most of the decline in the milk-feed price ratio during the first half of the year is due to lower trending milk prices. Domestic demand trends for fluid milk and dairy products has been irregular this year. The combination of more milk production this year (up 1.4% from a year ago during the first half of the year) and consumption that has been variable compared to last year led to the declining milk price trend. Fluid milk product sales volumes were down 2% from a year ago during the first quarter of the year and preliminary data for the spring quarter shows a similar decline. This results in more milk being available for the cheese, butter and milk powder markets, with lower prices being a lever needed to enhance usage of these products.

The lower prices have been more effective at encouraging exports than domestic usage. During the first half of 2017, domestic butter usage was unchanged from the first six months of last year. Cheese usage is up 0.7% from a year ago from January to June. These figures imply a slight decline in per capita usage when adjusted for population gains. Meanwhile, cheese exports for the first half of this year are up 24% from last year and butter exports are up 83%. Butter exports are not a significant segment of the US dairy industry, however, as this year’s exports only account for about 2% of production, or 2.5% of domestic use. Exports of pizza cheese are becoming a feature of the US dairy industry, with exports accounting for about 7% of US production last year.