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U.S. milk production creeps upward

An increase in October milk production was no surprise, but the continued decline in the number of cows was. Analysts expected higher milk prices and lower feed costs to push the number of cows up.

Published on November 25, 2013 2:37PM

Continued decline in cow numbers surprises analysts

By Carol Ryan Dumas

Capital Press

Total U.S. milk production, at 16.4 billion pounds, was up 1.0 percent in October, an increase well within the trend line analysts expected.

A continued decline in cow numbers, however, raises a few question marks, said Eric Meyer, president of HighGround Dairy, a division of Chicago-based HighGround Trading Group, a brokerage and consulting firm.

U.S. dairy cow numbers in October, at 9.2 million head, were down 3,000 head from September after having dropped 27,000 head in September and 10,000 head in August, month over month.

Given the increase in milk prices and decrease in feed costs, Meyer had expected the decline in cow numbers to stop. But the report shows cow numbers have not yet turned the corner, he said.

He predicts they will.

“It’s not a question of if; it’s a question of when,” he said.

The income over feed cost margin is increasing, and higher year-over-year cow numbers could start showing up as early as this month or as late as January, he said.

Income over feed cost margins were strong last month and are even stronger now, he said. The margin based on the all-milk price hit $7.86 per hundredweight of milk in August and rose to $9.43 in September and $10.57 in October, said Jerry Dryer, chief market analyst for Rice Dairy, a Chicago trading brokerage.

An income over feed margin of more than $7 typically points toward an increase in milk production, he said.

Lower feed costs are trickling onto the farm as dairymen use up their older, pricier feed, Meyer said.

“It depends on where you are and your purchasing decisions months ago,” he said.

Corn prices have fallen this fall from about $7 a bushel to less than $5 a bushel, taking the price of other feed down with it.

Prices for Class IV milk will be over $20 per hundredweight for October and November, and Class III milk prices continue to increase. Class III prices were $18.14 per hundredweight in September, $18.22 in October and will settle in the high $18s in November, he said.

“While October data suggests the return to monthly cow number growth has not yet occurred, history has proven that projected on-farm margins this large will spark herd expansion and milk-per-cow growth in the near future,” he said.

The overall cost of milk production is coming down, and for dairymen who buy a lot of corn, that cost is coming down, too, said Robin Schmahl, commodity broker and owner of AgDairy LLC, Elkhart Lake, Wis.

The decrease in cow numbers in October was a little surprising, but USDA reports are a month behind, and those numbers could be increasing, he said.

AgDairy’s customers are indicating an intention to push production and keep their stalls full. While that’s just a cross-section of the industry, the same intention may come into play across the industry in the near future, he said.

While production came in close to what analysts had expected and production reports aren’t normally a big market mover, they do give the industry market direction. The continued production increase in October shows the industry is moving ahead with production increases, he said.


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