cows
July 25, 2017

Is Production Starting to Tail Off?

 |  By: Mike Opperman

While milk production continues to be higher month-over-month compared to 2016, the rate at which it is increasing has fallen five of the first six months of the year. The June report just announced last week has milk production up 1.7% over June of last year.

“The good news from a milk price standpoint is that milk production growth is slowing,” says Bob Cropp, University of Wisconsin-Madison dairy economist, speaking in his monthly dairy outlook podcast along with fellow economist Mark Stephenson. Cow numbers keep growing and have been up year-over-year since the start of the year, but Cropp says the difference is production per cow which is only up 0.7% despite a growing cow herd.

Some of that slow down in production per cow could be due to weather, especially the heat in the plains states and wet weather in the upper Midwest that has hurt the ability to put up good forages. Another factor could be the drop off in use of rBST, which is no longer available to use in Wisconsin and is being discontinued in other regions of the U.S.

While a slow down in production growth could be a benefit to milk prices, another has to do with existing supply. The recent USDA cold storage report showed promising signs, with both butter and cheese stocks declining in recent months. With global demand at an all time high, it’s no surprise that butter stocks are running behind where they were a year ago. But cheese stocks in June were lower than in May, which is a promising sign. “Stocks are certainly above where they were last year for cheese, but the drop was big this month,” Stephenson says. The drop in inventory is reflective of both the slow down in production and increase in global demand and exports, Stephenson says.

Taking production and demand into account, Cropp says he’s a little softer on his price forecast. “Cheese demand has not been as aggressive as some predicted. It’s growing, but not like it was a year ago,” he says. “I’m looking at getting into the 16’s in August and maybe low 17’s in October, with an average for the year of $16.50 to $16.75.”

The economists started looking ahead to 2018 with have of 2017 gone. Both agree that exports will play a big role. “Will the export market hold up like it is and will the EU and New Zealand get back production,” Cropp says. “We’re going to have more competition on international markets.”

Cropp predicts margins to remain strong, although a higher hay price may tighten things a bit. He’s looking at prices in the 16’s in the first quarter of 2018, but concedes that a lot can happen between now and then.

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