By: Will Babler and Luke Strub, Atten Babler Commodities LLC
Regional Milk per Cow Growth
According to USDA, U.S. milk production continues to strengthen on a YOY basis as spring flush approaches. Apr ’15 production of 17,785 million pounds set a new monthly record high on a daily average basis and finished 1.7% ahead of a year ago.
U.S. milk per cow yields historically peak seasonally within the months of April and May. Spring flush can be a catalyst to soften prices, however effects of the current flush may be mitigated by poor milk per cow figures experienced throughout key Western and Southwestern states. California milk production has struggled in particular of late, with production declining YOY in each of the past five months. Poor milk per cow yields accounted for the vast majority of the YOY declines in California milk production, with per cow yields contributing to in excess of 95% of the YOY declines in production over the period. From Jan ’15 – Apr ’15, California milk per cow yields declined 2.7% YOY on a daily average basis, significantly below the Jan ’15 – Apr ’15 U.S. total milk per cow growth rate of 0.9%. Other Western and Southwestern states including Idaho, Texas, New Mexico, Washington and Oregon have all experienced declines in YOY milk production per cow over the first third of 2015. Combined with California, these states accounted for over 40% of total U.S. milk production a year ago.
Above average milk production per cow growth has been experienced in other major milk producing states including Wisconsin and New York, with Jan ’15 – Apr ’15 milk per cow yields increasing 3.2% and 1.8%, respectively in these states. Wisconsin and New York have increased their Jan ’15 – Apr ’15 per cow yields 6.1% and 5.1% above five year average figures vs. a minimal 0.4% increase in California per cow yields over the same period. Despite the gains in production made within Wisconsin and New York, declines in California production alone nearly offset the gains experienced in these states, with total production from the top three milk producing states up just 0.1% YOY over the past four months. Overall, U.S. milk production remains up 1.8% through the first third of 2015, however, when excluding California, production is up 3.0% over the same period.
Milk per Cow vs. All-Milk Price Seasonality
Historically, milk per cow yields have been negatively correlated with All-Milk prices. As milk per cow yields peak during spring flush, average historical All-Milk prices have reached seasonal lows, as shown in the chart below.
Although U.S. milk prices currently remain resilient on strong domestic demand, international dairy prices continue to decline, with the GlobalDairyTrade Price Index recently reaching lows not experienced since Aug ’09. U.S. milk production growth has continued at a moderate pace while export demand continues to be tempered by a strong U.S. dollar and once again divergent U.S. and international prices. Domestic demand has absorbed the additional milk output heading into the spring flush, but milk per cow output in key Western and Southwestern states will be of particular interest going forward.
Will Babler is a principal with Atten Babler Commodities LLC. The firm serves producers, processors and end users in the dairy industry by providing education, margin management programs and futures and options brokerage services. You can reach Atten Babler Commodities at 800-884-8290, info@attenbabler.com or www.attenbabler.com.
The information and comments contained herein are provided as general commentary of market conditions and are not and should not be interpreted as trading advice or recommendation. The information and comments contained herein are not and should not be interpreted to be predictive of any future market event or condition. Information contained herein is obtained from sources believed to be reliable, but cannot be guaranteed as to its accuracy or completeness.
