At first glance, USDA’s monthly report might indicate the growth wave of U.S. milk production has subsided. But, when adjusted for 2016’s leap day, milk output remains at high tide.
February 2017 milk production was estimated at 15.65 billion pounds in the 23 major dairy states, based on USDA’s latest monthly report, released March 20. However, although the report said milk production in those states was down 1 percent compared to a year earlier, output was up 2.5 percent when adjusting for leap day.
January 2017 production was tweaked slightly lower, at 17 billion pounds, up 2.7 percent from January 2016. The January revision represented a decrease of 4 million pounds (< 0.1 percent) from last month's preliminary production estimate.
Production per cow in the major states averaged 1,801 pounds in February 2017, 32 pounds less than February 2016. However, adjusted for leap day, production per cow was up about 1 pound per day.
The number of milk cows in the 23 major states was estimated at 8.69 million head, 66,000 head more than February 2016, and 3,000 head more than January 2017.
Nationally, February 2017 milk production was estimated at 16.70 billion pounds, down 1.2 percent from February 2016. However, production was 2.3 percent more than last year after adjusting for the leap year.
Production per cow averaged 1,782 pounds for February, 33 pounds less than February 2016. However, adjusted for leap day, production per cow was up about 1 pound per day.
U.S. cow numbers were estimated at 9.37 million head, 56,000 head more than February 2016 and 4,000 head more than January 2017.
Individual states
With adjustments for leap day, California’s milk production was down 2 percent, and Idaho production was up just 0.8 percent, according to calculations by Bob Cropp, dairy economics professor emeritus at the University of Wisconsin-Madison.
Reflecting recovery from last year’s Snowstorm Goliath, milk production grew 11.6 percent in New Mexico and 16.4 percent in Texas.
Elsewhere, production was up 3.8 percent in New York, 4.8 percent in Michigan, 2.9 percent in Minnesota, 4.6 percent in Iowa, 1.3 percent in Wisconsin and 4.6 percent in South Dakota.
The relative strong production increases in New York, Michigan and even New Mexico is making it difficult to find enough plant capacity to handle all of the milk, Cropp said in his monthly dairy situation and outlook report. Some milk has been dumped, or in the case of New Mexico, fed to calves.
Read also: Temporary Northeast milk dumping request granted
Price outlook
As U.S. milk production approaches the ”spring flush,” output can be expected to push higher. That will likely pressure milk prices lower, and Cropp has reduced his price projections for the rest of the year. He still sees a silver lining in strong demand and is slightly more optimistic than current milk futures prices.
Butter and dry whey prices have remained strong in March, Cropp noted, helping buffer some milk price declines. Butter has remained well above $2 per pound, and dry whey has held steady near 50 cents per pound. However, cash cheddar cheese and nonfat dry milk prices have fallen.
With lower cheese prices, the March Class III price will be near $15.70 per hundredweight (cwt), down from $16.88 per cwt in February, Cropp said. While butter prices have held, the lower nonfat dry milk price will push the March Class IV price to about $14.40 per cwt, down from $15.59 per cwt in February.
“We can expect the Class III price to be in the low $15’s and the Class IV price in the low $14’s for the months of April and May,” Cropp said. “But, with continued favorable butter and cheese sales along with continued improvement of dairy exports, milk prices should trend back upward after that. The Class III price could be back to the $16’s by June and reaching into the high $17’s by fourth quarter. The Class IV price could reach the $15’s by June and the higher $15’s by fourth quarter.”
Any price moves above those levels will require a slowdown in production, good domestic sales and continued improved exports.
Dairy products
All that milk is leading to more dairy product production and larger inventories. Compared to a year ago, January production of butter was 1.2 percent higher, cheddar cheese production was 3.5 percent higher, total cheese production was 3.7 percent higher and nonfat dry milk production 13.1 percent higher, according to Cropp. Butter stocks on Jan. 31 were 16 percent larger than a year earlier and nearly 50 percent higher than January 2015.
Total cheese stocks as of Jan. 31, 2017 were 4.6 percent higher than 2016 and 17.6 percent higher than 2015. Nonfat dry milk stocks were 1.1 percent higher than 2016 and 12.1 percent higher than 2015.
Impacting domestic demand, butter and cheese sales have softened, as buyers limit inventories and wait to see if prices will fall further. Fluid (beverage) milk sales continue their downward trend.
Dairy exports continue to improve, Cropp noted. Compared to a year earlier, January 2017 exports were up 13 percent for nonfat dry milk/skim milk powder, 3 percent for cheese, 24 percent for total whey products and 1 percent for lactose. However, butter exports were 26 percent lower.
Dairy margins deteriorated over the first half of March, as a sharp drop in milk prices more than offset lower feed costs, according to Commodity & Ingredient Hedging LLC. Second-quarter 2017 margins are now only slightly above breakeven. Although deferred margins remain higher than those in nearby periods, they have also weakened.
Milk prices seem to be under pressure from declining domestic demand following the holidays and Super Bowl. Even with spot milk as low as $5 under Class III, cheesemakers are turning away offers as contractual milk supplies are meeting production needs. The challenge for some Midwestern cheese manufacturers seems to be finding a middle ground between cheese production and managing cheese inventories. The latest Northeast fluid milk report likewise showed an abundant supply.
In their monthly podcast, Cropp and Mark Stephenson, Director of Dairy Policy Analysis at the University of Wisconsin-Madison, said the “early flush” is already stretching plant capacity. But, while lower prices shrink producer income margins, neither Cropp or Stephenson expect Margin Protection Program for Dairy (MPP-Dairy) indemnity payments to be triggered.
“Unless demand falls apart, we still have opportunity for increasing prices,” Stephenson said.
European Union milk production is recovering, but still below year-ago levels. EU intervention stocks of milk powder continue to overhang the market. Australian output has rebounded, but overall production in the major dairy exporting countries is less than a year ago. 
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Dave Natzke
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- Progressive Dairyman
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