April 25, 2019

Production May Be Down, But Components Are Still Strong

 |  By: Mike Opperman

The March USDA milk production report showed fluid milk production down 0.4% from last year, mostly because the national cow herd dropped 0.9% and production per cow only rose 0.5%. Production was down for the first time since February 2017. 

But looking at total production doesn’t tell the whole story, according to Nate Donnay, director of dairy market insight at INTL FCStone. 

“The difference between this year, and say 2009, is that the fat and protein in the milk is up significantly from last year,” he says. “So on a component adjusted basis, production was up 1.6% from last year in March.” 

The 10-year average year-over-year component growth is 1.8%, so the adjusted production is slightly slower than average.
So what does all of this mean going forward?

  1. Cow numbers are indeed dropping. “The weekly slaughter numbers into April are still suggesting contraction for the dairy herd,” Donnay says. Economic models suggest the downturn will continue through July, when better margins should slow contraction and even potentially boost herd sizes.
  2. The USDA estimate for production per cow was very weak for March. Usually that’s short lived and due to weather, Donnay says. The upper Midwest did have a late April blizzard that could affect production, but he says even if production is down 35 pounds per cow from trend in April, production per cow would still be 1.4% higher than last year.

“Combine a herd that is down 0.9% with 1.4% gain in production per cow, we should be back to a positive headline milk production number next month,” Donnay says. “Even without a positive headline number, as long as components stay strong there is going to be plenty of fat and protein around to turn into things like butter, cheese and powders.”