Cheese prices have been falling like a rock since the beginning of June. June, being the dairy month, has not been able to support cheese prices. This has negatively impacted Class III milk futures, taking the July contract down to the lowest level since early April and near contract lows. Subsequent months have followed suit but have not fallen to the same extent as the July contract. This has dimmed the price potential for milk.
The May Milk Production report did not provide any support to the outlook for milk prices. Milk production in the U.S. increased 1.6%, making it the second month of a gain of that extent. Milk production has been gaining each month so far, and there seems to be nothing to slow milk production down. The potential for higher milk prices was met with increased milk output, and lower milk prices likely will be met with greater milk output as well. Such is the nature of farming, whether in dairying, grain production, or livestock production.
The very evident standout is the increase in cow numbers. I have written about this a few times, and I do not want to keep beating the drum, but high beef prices have tightened the replacement heifer market and increased heifer prices substantially. Cow numbers are growing due to dairy producers holding onto cull cows rather than purchasing heifers. The Mary production report showed cow numbers increasing 5,000 head from April and up 114,000 head from May 2024, totaling 9.45 million head. This is the highest number of cows since August 2021. Naturally, milk production is going to be higher.
It has been anticipated that holding onto cull cows would reduce the overall volume of milk per cow, as these cows would not have the capacity to improve production per cow. That has not been the case, as milk per cow in May was 7 pounds above May 2024.
The surprise on the milk production report was not the increase in cow numbers from April, but the revision of the cow numbers from the April report. The USDA reported the cow number had increased by 5,000 head from March, totaling 9.425 million head. However, in the May report, they revised cow numbers in April up 15,000 head, resulting in an increase in cow numbers from March to April of 20,000 head. That is a huge revision, putting the cow number at a multi-year high.
Dairy cattle slaughter in May totaled 196,700 head, down 19,400 head from May 2024. This marks the 20th consecutive month with a year-over-year decline. This is not expected to change much during the rest of this year.
This does not mean that milk prices may not swing back up sometime in the next few months, but it dims the upside price potential.
Robin Schmahl is a commodity broker with AgDairy, the dairy division of John Stewart & Associates Inc. (JSA). JSA is a full-service commodity brokerage firm based out of St. Joseph, MO. Robin’s office is located in Elkhart Lake, Wisconsin. Robin may be reached at 877-256-3253 or through the website www.agdairy.com.
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