milk splash
March 29, 2016

More Pain Ahead as Output Grows

Top Story  |   |  By: Mary Ledman

If the cure for low prices is low prices, then there are still price concessions to come in the dairy sector. Analysts around the globe agree current milk prices fail to cover the cost of production on most dairy farms. Nevertheless, year-overyear (YOY) production gains continue to exceed 5% in Europe, and the rate of growth in U.S. milk output is improving.

CME Group spot dairy product prices closed the week before the Easter holiday on a high note despite more-than-ample milk supplies across the U.S. The CME cheddar barrel price jumped 8¢ to $1.50 per pound to close a penny higher than the cheddar block price on Friday. Both block and barrel cheese prices are trading near a three-month high.

The sustainability of current spot cheese prices is questionable. Milk production across the U.S. is seasonally rising and available milk for manufacturing has increased due to school spring breaks, challenging plant capacity early in the season. USDA’s Dairy Market News reports Midwest cheese plants are acquiring spot loads of milk from $1.50 to $3 per cwt under class prices. Milk in the Central region traded $3.50 below class and some milk was dumped, according to the agency.

More Milk In Pipeline. U.S. milk production is growing at a faster rate, according to USDA’s February Milk Production report. It rose 2% on a daily average basis in February 2016 compared to January. At 16.9 billion pounds, February’s milk output, adjusted for Leap Day, was 1% greater on a daily average basis compared to February the year before and the highest percentage YOY gain in output since August 2015. Greater production is due to increased output per cow. The U.S. dairy herd at 9.31 million head is modestly higher, up 2,000 head, than the prior month and 4,000 head greater than 2015. Wisconsin posted the largest gain in YOY February milk production, up 112 million pounds, followed by Michigan (60 million pounds) and New York (49 million pounds). California reported a 2.9% (96 million pounds) drop in YOY output.

Goliath’s Impact Lingers. The winter storm’s effect on milk production continues in the Southwest, where New Mexico and Texas posted YOY production declines of 6% and 2%, respectively. However, month-over-month comparisons in New Mexico and Texas improved by 6% and 7%, respectively. In addition, USDA pegs the New Mexico dairy herd at 311,000 head, up 1,000 head in February but still 12,000 fewer milk cows than 2015. For the week ending March 5, dairy cow slaughter totaled 59,100 head, down 1,000 head from the same week a year ago. Year-to-date slaughter totals were down 900 head to 611,600.

Recovery Will Be Delayed. Despite low prices, with ample supplies of lower-cost feedstuffs, lower energy costs, and several years of favorable margins and reducing debt, many producers’ balance sheets are well positioned to weather the economic downturn—and that will likely delay the recovery