Average Milk Output Not Good Enough

(AgWeb) – This spring’s lackluster flush won’t be strong enough to outpace demand growth or significantly reduce milk prices.

Expectations that milk production would come roaring back this spring are quickly fading. While a flush is starting to occur in the eastern half of the country, strong demand could continue to support milk prices into the fall—particularly if hot, humid weather settles into the heartland.

“With low dairy product stock levels, summer heat coming on, and issues with alfalfa supplies, the lackluster flush won’t be strong enough to significantly reduce milk prices,” says Mary Ledman, dairy economist with the Daily Dairy Report and president of Keough Ledman and Associates, Libertyville, Ill. That said, sustained high milk prices could reduce export demand as U.S. prices become less competitive.

U.S. milk production is building seasonally. According to USDA’s latest Milk Production report for May, released June 18, milk production posted its largest year-over-year monthly gain for 2014 of 1.4% as production climbed to 18.055 billion pounds.

“May was the first time this year that monthly growth matched the historical year-over-year trend growth rate of 1.4%,” says Ledman.

But “average” milk production might not be strong enough. Recent increases in CME spot butter and cheese prices as well as this week’s stabilizing Global Dairy Trade (GDT) prices indicate that output gains are not outpacing demand growth.

U.S. milk production in May increased just 0.1% above April levels on a daily average basis. Output is trending lower in key western states with California, Idaho, and Washington’s combined daily average production down 0.6% in May vs. the prior month.

“Alfalfa prices are high in California, premium-quality hay is hard to come by, and drought has curbed pasture growth,” says Ledman.

Month-over-month milk production is trending higher in Iowa, Wisconsin, Michigan, Ohio, Pennsylvania, New York, and Vermont. Year-over-year production gains have improved with Wisconsin output on par with last year’s and Minnesota production down just 0.1%. Late-spring weather conditions curtailed year-over-year production in Pennsylvania and New York, which reported 1.4% and 0.3% decreases, respectively, compared to the previous year.

U.S. cow numbers increased by 10,000 head in May to 9.252 million. USDA also revised its preliminary April dairy herd estimate upward by 11,000 head to 9.242 million cows. Year-over-year comparisons are unavailable due to last year’s fiscal sequester.

USDA projects a year-over-year increase in milk production of 2.4 percent in 2014. That means monthly gains through the end of the year would have to exceed 3%, which are unlikely, she says.

“Dairy producers across the United States need optimal weather and feed to reach those types of production gains, and Mother Nature just hasn’t been cooperating,” Ledman adds.