Reduced cow number surprises dairy analysts
In the dark on milk cow numbers since USDA’s last report on those numbers seven months ago, most dairy industry analysts considered industry conditions and thought cow numbers were increasing. Data showing a 19,000-head decrease in September from February’s count took most by surprise.
While U.S. cow numbers were up 12,000 in September over a year ago, the downward trend since February caught analysts off guard.
Milk cow numbers were increasing from November to February when the reporting ended and were thought to be increasing, said Bobb Cropp, dairy economist with University of Wisconsin in his November Dairy Situation and Outlook.
The January cattle inventory report showed more than enough replacements to grow the herd, and with dairy producers facing much more favorable margins than a year ago, it is surprising that there weren’t more cows for September, he said.
In addition, the national herd lost 10,000 head in August and another 25,000 in September.
“We find this odd given domestic milk prices have been on the incline for the past few months and the outlook for on-farm profitability has improved since corn prices began moving lower in June,” said Eric Meyer, president of HighGround Dairy, a division of Chicago-based HighGround Trading Group, a brokerage and consulting firm.
USDA data on cow numbers had not been reported since the report on February’ due to sequestration, but cow numbers for July, August and September were reported in the most recent release.
The July number, up 16,000 over February was not surprising. It was in line with reported monthly milk production increases and analysts’ observation that with milk prices moving higher and feed costs moving lower, the upward trend in cow numbers was continuing, Meyer said.
In addition, a milk price hike in spring due to the drought in New Zealand led folks to believe things would improve. It does take some time for expansion once margins over feed costs improve, but producers embrace a positive mindset pretty quickly, he said.
The national herd did increase between March and July, but September’s cow numbers are the lowest since November 2012. The lack of available data due to sequestration could have been a factor, he said.
Forage supplies are tight enough and slaughter cow prices high enough that producers have been culling more aggressively, said Jerry Dryer, editor of Dairy & Food Market Analyst and chief market analyst for Rice Dairy, a Chicago trading brokerage.
Meyer agrees those could have been contributing factors, but said dairy cow slaughter in September was only up 3.2 percent from September 2012.
Another factor could be that cheaper feed costs might not yet have played into producers’ business formulas, with high feed costs lingering as producers feed old crop from advanced purchases, he said.
Yet another factor could be that Class III and CME cheese prices have lagged the Class IV price for butter and nonfat dry milk since February, causing producers in heavy cheese- and whey- producing states to struggle more than others, he said.
The drop in September cow numbers in Idaho was pretty substantial, and New Mexico seems to have struggled as well, he said.
Idaho was down 9,000 cows in September compared with September 2012, and New Mexico was down 4,000 cows.
Milk production and milk per cow estimates for September were also a surprise. Milk production was only 1 percent higher than a year ago, and milk per cow was only 0.8 percent higher. Expectations were higher for both because both were lower in September 2012 than the previous September, Cropp said.
In addition, year-over year milk production in September wasn’t as large as it was this summer. That year-over-year production was up 2.4 percent in August, 1.3 percent in July and 1.5 percent in June.
The biggest culprit is feed quality, with the transition from 2012 feed supplies to 2013 supplies problematic, Dryer said.
Rain messed up hay quality to varies degrees in several areas of the country, and Upper Midwest producers ran out of 2012 corn silage and have been forced to start feeding corn harvested for silage this year before it is fully fermented, he said.