September 28, 2016

Nation’s Dairy Herd at 20-Year Record High

 |  By: Fran Howard

A weak dairy cull cow market, coupled with and an abundance of heifers at relatively higher prices, could be creating enough of an incentive for U.S. dairy producers to keep even marginal cows in their herds. The nation’s larger milk herd supported year-over-year increases in August milk production despite a record-hot month in several of the top-10 dairy states.

In August, U.S. dairy producers milked more cows than in any month in nearly 20 years. In its recent Milk Production report, USDA estimated the nation’s milk herd at 9.36 million cows, up 45,000 head from the previous year. USDA also revised its estimate of the July milk herd higher by 12,000 head and reported a July-to-August increase of 16,000 head.

“The U.S. dairy herd might even be larger than USDA reports. In its recent Milk Production report, USDA had production per cow up 3% in New York despite record-breaking heat in August,” says Sarina Sharp, agricultural economist with the Daily Dairy Report. “It was also hot in Michigan, where producers were reporting severe declines in production per cow.”

Even so, USDA reported that milk yields in Michigan were 3.5% higher than a year ago. Sharp wouldn’t be surprised to see upward revisions in milk cow numbers in both of those states when USDA releases its September Milk Production report on October 20.  

According to the National Oceanic and Atmospheric Administration, every state in the contiguous United States had above average summer temperatures. Year-to-date temperatures in the contiguous 48 are also above average. Moreover, California reported its warmest summer on record, while Connecticut, Delaware, Maryland, Massachusetts, New Jersey, Pennsylvania, and Rhode Island posted a record hot August.          

“Producers have continued to expand even with this year’s thin dairy margins, and floundering beef prices are largely to blame,” says Sharp. “Last week, lean beef prices averaged $2.03/lb., a 25% drop from a year ago, which reduces the value of dairy cull cows and bull calves.” A drop in the cost of replacement heifers, however, has not kept pace with the declining values of cull cows and bull calves.

“The net cost to cull and replace older cows has climbed significantly, and the disparity has incentivized dairy producers to keep cull rates low,” notes Sharp. In July, U.S. dairy producers culled just 2.3% of the milking herd, the smallest share since June 2014.        

“When beef prices were high, some dairy producers bred a share of their herds to beef bulls and sold the calves and less desirable heifers to feedlots,” Sharp notes. “Sales to feedlots are happening with less frequency now, leaving more heifers available to dairy producers. Because bull calves and other cattle destined for the slaughterhouse are now less valuable than they had been, producers are likely to use more sexed semen and embryos. This will augment dairy heifer numbers for years to come, and heifer supplies are already large.”

At the beginning of the year, more than 3.1 million dairy heifers were expected to calve in 2016, which is by far the largest number since USDA began reporting the statistic in 2001, Sharp notes.        

“As heifer supplies continue to grow, U.S. milk output is likely to expand, and dairy cow values will probably decline,” Sharp adds. “The lack of processing capacity could be the only factor to limit milk output in some of the fastest-growing regions. The United States will need to improve exports to prevent dairy product stockpiles from growing even larger.”

Fortunately, milk production in other major dairy exporting countries particularly New Zealand, Australia, and parts of Europe, is likely to recede in the near-term.