A year ago milk production was running strong, the result of more milk cows and increases in milk per cow.
March milk production was 4.3 percent higher than the year before and 4.2 percent higher January through March daily adjusted. USDA, NASS has ceased their monthly milk production report showing milk cow numbers and milk per cow but continues its estimated total milk production for 23 states and the U.S.
For March USDA estimated milk production to be 0.1 percent lower than a year ago with U.S. milk production unchanged. Milk production continues to be lower for most Western states with production down 2.8 percent for Arizona, 3.3 percent for California, 2.9 percent for New Mexico and 4.1 percent for Texas. Idaho had a small increase of 0.5 percent. For the northeast, milk production was up 1.8 percent higher for New York, 0.3 percent for Pennsylvania, 3.0 percent for Michigan and 2.3 percent for Ohio. In the upper midwest, production was up 1.8 percent for Minnesota, 1.0 percent for Iowa, and 3.0 percent for Wisconsin.
USDA is now estimating milk production for the year to total 201.8 billion pounds, 0.7 percent more than 2012 unadjusted for the extra day in February 2012 or 1.0 percent adjusted. An annual milk production growth of less than 2 percent is positive for milk prices, especially with the level of anticipated dairy exports this year.
Not knowing what is happening to cow numbers, it is not known whether the March milk production was due to more or less cows or changes in milk per cow. Cow numbers could be declining or at least not increasing as dairy cow slaughter thus far this year has been 5.0 percent higher than a year ago, and a year ago dairy cow slaughter was running 0.4 percent lower than the year before for this period. However, dairy cow slaughter has slowed for the past couple of weeks. Further, January dairy replacements expected to enter the dairy herd within the next months was 4 percent fewer than a year ago and average just 31.7 per 100 milk cows which is a little lower than the normal turnover of cows in the herd.
The latest dairy product report was for the month of February. Adjusting the production for 28 days in 2012 and comparing it to 2013 shows production was down 0.7 percent for butter, 2.2 percent for American cheese, 3.5 percent for total cheese and 12.1 percent for dry whey. While the production of nonfat dry milk was down 22.8 percent skim milk powder was up 128.6 percent in response to export potential.
Domestic sales of cheese are reported to be fair with butter sales strengthening. But beverage milk sales continue their downward trend. January sales compared to a year ago were 2.1 percent lower.
Dairy exports are starting out the year above year ago levels. Compared to a year ago exports were up 34 percent for butter, 9 percent for cheese, 37 percent for lactose, and 43 percent for whey protein concentrates. But, exports of nonfat dry milk/skim milk powder and dry whey were respectively 15 percent and 9 percent lower.
Exports are anticipated to continue to improve as drought in New Zealand has cut their seasonal milk production short and milk production is running lower in Argentina and Australia with production also lower for most EU countries. With this level of milk production in the major exporting countries we can expect exports of nonfat dry milk/skim milk powder and dry whey to also run above year ago levels by summer. With tighter world supplies, world prices of dairy products are increasing, which will help U.S. exports.
Despite lower dairy product production, stocks of dairy products grew from the end of January to the end of February. These increases were as follows: butter 16 percent, American cheese 3.7 percent, total cheese 3.8 percent, nonfat dry milk 13.6 percent and dry whey 9.2 percent. Ending February stocks compared to a year ago were as follows: butter up 17.1 percent, American cheese up 5.1 percent, total cheese up 4.5 percent, nonfat dry milk up 16.5 percent and dry whey up 38.7 percent. Stocks normally do increase as we approach May and early summer reflecting the spring flush in milk production.
Dairy product prices have shown real strength in recent weeks, reflecting anticipation of continued growth in domestic sales and favorable exports. CME butter was $1.575 per pound the beginning of March and improved to $1.7875 by April 19. CME cheddar barrels were $1.56 per pound the beginning of March and improved to $1.77 by April 19. CME cheddar blocks were $1.575 per pound the beginning of March and improved to $1.88 by April 19. Nonfat dry milk has shown slight strength and is trading in the range of $1.54 to $1.68 per pound. Dry whey prices are steady, trading in the range of $0.53 to $0.59 per pound.
Stronger dairy product prices are adding strength to milk prices. The Class III price was $16.93 in March compared to $15.72 a year ago. The Class IV price was $17.75 compared to $15.53 a year ago. April prices will improve to near $17.65 for Class III and $18.30 for Class IV. Dairy futures continue to show strength for distant months. Class III futures are in the low to mid $19s from May through September and end in December at $18.30. Class IV futures are $20-plus from June through October and end in December at $19.40.
Based on existing milk production and market conditions, the Class III and Class IV futures seem quite reasonable. If the growth in milk production continues well below 1 percent and domestic sales and exports continue favorable, the Class III reaching even higher at $20 by summer or early fall is quite possible. In recent weeks corn and soybean prices have fallen. However, hay and soybean oil meal prices remain high. If crop conditions look good by mid-summer, feed prices will decline further. With higher milk prices and lower feed cost, milk cow numbers could once again start to increase by late summer along with higher production per cow, increasing the rate of growth in milk production and lowering milk prices at the end of the year and into 2014.