Dairy cattle

Milk production increases are starting to slow down, offering hope that prices will increase later this year.

U.S. milk production in February grew just 0.2% year over year to 17 billion pounds. While it increased in 14 of the 23 top reporting states, it fell in eight and remained the same in one, according to USDA National Agricultural Statistics Service.

Cow numbers have been declining since June of last year, and in February were down 77,000 head year over year. Per cow production is only up 1%.

“So that’s (all) good news on the production side,” Bob Cropp, dairy economist at the University of Wisconsin, said in the latest Dairy Situation and Outlook podcast.

The annual milk production report showed 35 states had lower milk production in 2018 compared to 2017, 39 states had fewer herds and 30 states had fewer cows.

“I think we’ll have a report that more herds probably exited this first quarter of the year,” he said.

Dairy cow slaughter is up a bit, and the number of replacements entering the milking production stream are down a little bit. Milk prices and producer returns aren’t good, he said.

“I think production will keep on growing relatively slowly,” he said.

In addition, there’s finally talk that the heifer supply has tightened to the point that explosive growth wouldn’t be possible, even if there are prices to support it, Mark Stephenson, fellow dairy economist at the university, said.

There are record cheese stocks, but the slower milk production should ease those stocks down and start strengthening the cheese market and milk prices, Cropp said.

But cheese prices at $1.54 to $1.58 a pound have to get to the $1.70s to get Class III milk prices to $16 per hundredweight, he said.

On the global front, severe drought in New Zealand is likely to affect upcoming milk production. Australia’s production has been down due to drought, and EU production is flat, Stephenson said.

World milk production isn’t booming, and prices on the Global Dairy Trade auction have been strengthening for the last eight trades, Cropp said.

Domestic demand in the U.S. has been somewhat soft, but exports were at record highs in 2018 — mostly in the first half of the year before the U.S. trade wars with Mexico and China, he said.

Export sales “have been better I think than we expected, but there’s room for improvement,” Stephenson said.

As for milk prices, Cropp said he still thinks the futures for the second half of this year are too soft. He’s looking for Class III prices to get into the $16s by May or June and the high $16s in the last quarter.

What could really strengthen prices are tight stocks and non-robust milk production. If milk production stays on its current trajectory that could happen in the third or fourth quarter, Stephenson said.

“I think that that’s a very plausible scenario,” he said.

He’s looking for Class III prices to hit the $17s in the fourth quarter, he said.

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