unkown markets
May 8, 2018

Will Higher Milk Prices Increase Production?

 |  By: Robin Schmahl

Milk production has yet to slow down as cow numbers remain high and milk per cow continues to improve. This pattern may change this year as the calendar moves forward. It is very difficult to determine if the loss of dairy farms will have an impact on overall milk production. One would think this would be the case, but there has been little evidence of it so far. If milk prices continue to improve, the impact may not be as great as initially believed earlier this year. Payments from the Margin Protection Program will aid in boosting farm milk prices depending on the level chosen, amount covered, and premium paid.

USDA estimated milk prices on the April World Agricultural Supply and Demand report to average lower than 2017 and lower than 2016. They will release updated estimates on May 10th which will show a revised estimates. It will be interesting to see the revisions that will be made. Their estimated Class III price this year is an average of $14.45 with the price range being $14.20-$14.70. The average for 2017 was $16.17 with the average for 2016 being $14.87. The current average of Class III already announced prices and futures prices indicate an average of $15.45. The estimate for Class IV for the year is an average of $13.55 with a range of $13.25-$13.85.  This compares to the average for 2017 of $15.16. Already announced Class IV prices and current futures indicate and average of $14.81. So far, it looks to be a better year than last year.

According to the annual Milk Production, Disposition, and Income 2017 report. California remained the number one milk producing state with an output 39.768 billion pounds with average cash receipts from marketings at $16.50 per cwt. Wisconsin posted production of 30.076 billion pounds with average cash receipts of $18.10 per cwt. New York came in at number three with production of 14.595 billion pounds and an average price of $18.20. The state of Hawaii posted the highest cash receipts from marketings at $28.60 per cwt while Arkansas showed the lowest milk marketings of 2.5 million pounds. The average number of dairy cattle for the year was 9.393 million head, and increase of 67,000 from 2016. The butterfat content of milk produced in 2017 was also higher showing an increase of 0.05 percent averaging 3.84. USDA is currently anticipating milk production to increase 3.5 billion pounds. It will be interesting to see if this will be achievable under current market conditions.

Another milk plant is dealing with heavy milk volume by eliminating some patrons. This idea began last year and seems to have opened a way for milk plants to deal with their excess milk rather than imposing a quota to match plant capacity. Arla Foods USA plant in Hollandtown, WI gave notice to 11 patrons that their milk would no longer be picked up July 1st.  Dean Foods did this 2 months ago to over 100 patrons in various states. Many farmers have yet to find a home for their milk by the June 1st deadline. Some have decided to sell out.

Changes to the Co-ops Working Together (CWT) export assistance program have now been implemented. These changes consist of extending eligibility to whole milk powder and blends of natural cheeses; establishing eligible volumes of butter and whole milk powder at a maximum of 150 tons and eligible volumes of cheese up to 300 tons; extending the delivery period for cheese to 180 days; and allowing exceptions to the volume and delivery periods for butter and whole milk powder. These provisions are the first in a series of anticipated changes with other products expected to become eligible for assistance.