U.S. Dairy Herd Shrinks in March; First March Decline Since 2009

The dairy cow herd declined by 2,000 head in March according to USDA-NASS, the first February-to March decline since 2009. Milk prices at the farm dropped by $2.00 per cwt. from the last quarter of 2017 to the first quarter of 2018, and Class III milk prices (cheese grade milk) fell by $2.50. Those were the lowest milk prices since the spring quarter of 2016. In 2009, farm milk prices dropped $4.50 from the last quarter of 2008 to the following quarter and didn’t begin to recover until the last quarter of 2009. The dairy herd continued to decline throughout 2009, and milk production fell about half a percent from 2008’s output.

A short-term recovery in milk and dairy product values has been underway since March, which could curtail continued declines in the milk cow herd. Class III milk prices were up 80 cents per cwt. in March and 25 cents in April. According to CME cash prices reported in Dairy Market News, non-fat dry milk prices averaged 71 cents per pound during the first quarter, dropping below 70 cents in some weeks, but have rallied into the mid-80’s in early May. Currently, butter prices are trending higher, approaching $2.40 a pound, 5% higher than a year ago. U.S. inventories of butter and American-type cheeses are at similar levels to a year ago, but non-fat dry milk and non-American-type cheese inventories are up close to 10% from a year ago. In all cases, last year’s inventories were considered large, if not unprecedented. The price rallies in these markets have caught many industry observers by surprise.

Globally, dairy prices have been on the upswing this spring. Oceania milk powder prices are up 4% to 5% since the end of March while Western Europe price is up about 10%. Both of those increases are less than U.S. powder prices have risen during the same interval. That could mean that U.S. milk powder prices were currently a bargain, but that might not be the case going forward. Year-over-year, non-fat U.S. dry milk exports increased 30% year-over-year in February and were up close to 40% in March.