Weekly Dairy Market Outlook

By Ken Bailey

Penn State University

August 19, 2005

July U.S. Milk Production up 3.9 Percent

§ Milk production at 15.0 bil lbs

§ Milk per cow up 3.5%

§ Cow numbers up 13,000 head

The July milk production report indicated another month of record breaking milk production. For the U.S., the milk supply grew an estimated 3.9 percent in July relative to a year ago to 15.0 billion pounds. Both cow numbers and milk per cow were up over a year ago. Cow numbers grew 13,000 head from the previous month and milk per cow was up 56 pounds or 3.5 percent over a year ago. Growth in cow numbers has averaged 7,000 head per month so far this year.

Three of the 23 states surveyed had double digit grow rates: Colorado +13.8 percent, Idaho +13.4 percent, and Texas +11.0 percent. Nine states had positive grow rates of 4 to 8 percent: Arizona +6.3 percent, Indiana +7.7 percent, Michigan +6.3 percent, New Mexico +4.1 percent, New York +3.8 percent, Ohio +4.2 percent, Pennsylvania +7.0 percent, Washington +4.3 percent, and Wisconsin +4.9 percent.

The National Milk Producers Federation announced a third herd retirement round of their Cooperatives Working Together Program (CWT). Their objective is to retire 70,000 head of cows during the months of October 2005 – January 2006. They are attempting to provide a better balance between supply and demand.

I made some rough calculations to estimate the milk supply with the new CWT program. I assumed the program would cull 17,000, 36,000, and 17,000 head of cows from the U.S. milk herd during October, November and December of 2005. I also assumed that the milking herd would grow 10,000 head a month in August and September, and that there was an economic incentive to add an additional 7,000 head a month to the U.S. milking herd during October through December. I also assumed that milk per cow would grow 2.5-3.2 percent each month relative to a year ago. Thus, even with the CWT program, the milk supply is projected to grow to 175.8 billion pounds in 2005, 2.9 percent over a year ago.

But an analysis for 2005 isn’t a fair comparison since the CWT program is designed to reduce the future milk supply. Let’s assume that milk prices will stay high enough to continue to encourage an expansion in cow numbers of 7,000 head per month. Let’s also assume that growth in milk per cow will slow to 2.0 percent over a year ago. With these assumptions, the milk supply in 2006 is projected to grow to 179.7 billion pounds, up 2.2 percent over 2005 levels.

By my estimation the CWT program will help firm milk and cheese prices for the remainder of this year. However, the numbers suggest it will be very difficult for the CWT program to keep ahead of the avalanche of milk coming our way. Thus producers should expect lower milk prices in 2006. Of course there could be other factors in 2006 that could result in lower cow numbers or milk per cow, including another fall CWT program.

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