Tariffs taking toll on dairy markets

Bob Cropp, left, and Mark Stephenson of the University of Wisconsin.

The first milk production report since the partial government shutdown shows the U.S. is slowing the flow, growing just 0.5% year over year in December.

But spigot rates varied across the country, with some big reductions to the east of the Mississippi River offset by some significant increases to the west.

Milk production dropped 12.3% in Virginia, 9.7% in Illinois, 7.2% in Florida, 6% in Pennsylvania and 3.7% in Indiana.

Pennsylvania dropped 20,000 cows from the herd year over year. The cow count was down 8,000 head in Virginia, Illinois and Florida and down 6,000 head in Indiana.

Countering those decreases were milk production increases in Colorado (up 6%), South Dakota (up 5.5%), Kansas (up 5.3%), Idaho (up 4.9%), Washington and Texas (each up 4.8%), Oregon (up 4.3%), Utah (up 2.1%), and California (up 1.7%).

All of those states increased cow numbers year over year, with Texas topping the list with an additional 27,000 head. Heavy hitters Idaho and California added 14,000 and 11,000 cows, respectively.

Nonetheless, total cow numbers across the country declined 49,000 year over year in December.

The good news is milk production was only up half a% in the last quarter of the year and cow numbers are still going down, Bob Cropp, an economist at the University of Wisconsin, said in the latest “Dairy Situation and Outlook” podcast.

For all of 2018, milk production was up a little over 1% and cow numbers are lower, he said.

“So that’s good news because (with) production at that level … we should start seeing some improvement in prices,” he said.

Prices have increased in the last six Global Dairy Trade auctions, with prices for all products except butter running higher than U.S. prices. EU intervention stocks of powder are practically eliminated, increasing powder prices in the EU, he said.

That’s also reflected in the U.S. Class IV milk price, which is up almost $1 per hundredweight, Mark Stephenson, another University of Wisconsin economist, said.

But the Class III price on milk for cheese is still struggling, he said.

Cheese demand is a little soft, and the last stocks report was 8% higher year over year. There’s been a little movement upward in cheese prices, but not enough to get Class III prices out of the $14 range, Cropp said.

The futures market anticipates Class III prices in the $15s in the second quarter and hitting $16 by August. But he’s a little more optimistic than that if milk production stays at current levels, he said.

“Normally you could handle about a 1% growth in production with the domestic demand and more exports,” he said.

But there has to be strength in prices and a reduction in cheese stocks, he said.

“This is one of those areas where you could say it could go either way,” Stephenson said.

But this is happening in the U.S. and abroad, leading him to believe prices will be higher than what’s currently being projected, he said.

In addition to restrained milk production in the U.S., production is declining in New Zealand and is still down in the EU, he said.

U.S. exports are likely to be lower than they were in 2018 but yet decent enough to support prices. But a lot is going to depend on milk production this summer and what happens with trade deals, Cropp said.

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