Weekly Dairy Market Outlook

By Ken Bailey

Penn State University

March 18, 2005

Headline: February Milk Production Report Neutral

· Cow numbers fell in February

· Daily average milk production up 2.5 percent

· CME prices mixed

USDA released the milk production report this week for the month of February. The report showed a 2.5 percent increase in estimated U.S. milk production on a daily average basis. However, it was completely discounted by the market. On Friday, March 18, 2005, Class III futures averaged $14.03 per cwt for the months March through December 2005. The market is still expecting milk supplies will be tight this year.

Cow numbers fell from January to February, and milk per cow was down in February when compared to a year ago. For 23 states, cow numbers fell 9,000 head in February from a year ago. Milk per cow in February was down 15 pounds per day for 23 select states. Overall, milk production in February for 23 select states was 12.24 billion pounds, down 0.7 percent from a year ago. The estimate for U.S. production was 13.45 billion pounds, down 1.1 percent from a year ago. However, adjusting for Leap Year, or using a daily average calculation, milk production for the U.S. was down 2.5 percent.

My conclusion is that cow numbers fell from a month ago and productivity per cow is still limited. There is a lot of culling going on and herds are not building. So that is why the market remains very strong on prices. Milk per cow in California alone was down 40 pounds per cow. The market is likely assuming that California milk production will be depressed for a few more months due to bad weather. Milk per cow in New Mexico was down 100 pounds per cow. Overall, the market is still tight.

Prices at the Chicago Mercantile Exchange this week were mixed. Block cheese prices rose slightly from $1.4675 per pound on Monday, March 14 to $1.48 per pound by Friday, March 18. Barrel cheese prices were steady, rising slightly from $1.44 per pound on Monday to $1.4450 per pound by Friday. Grade AA butter prices were more volatile, rising from $1.57 per pound on Monday to $1.5950 per pound on Wednesday. Butter prices then fell to $1.5825 per pound on Friday. Trading activity was mixed this week at the Chicago Mercantile Exchange with 52 carloads of butter trading hands, but only 5 carloads of barrels and 9 carloads of blocks.

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