Weekly Dairy Market Outlook

By Ken Bailey

Penn State University

June 16, 2006

May Milk Production Slows

· 23 state milk production up 2.8%

· Daily average U.S. production up 2.4%

· Cow numbers continue to grow

USDA announced today the U.S. milk production figures for May. The rate of growth in daily average milk production has slowed noticeably from 508.7 million pounds in February (up 5.3 percent relative to a year ago) to 518.3 million pounds in May (up 2.4 percent relative to a year ago). This is good news for U.S. milk producers who are concerned about falling milk prices. The bad news, however, is that the number of cows on U.S. farms continues to grow month after month.

Estimated U.S. milk production in May was 16.1 billion pounds, up 2.4 percent on a daily average basis from a year ago. Cow numbers grew from 9.125 million head in April to 9.145 million head in May. This is the sixth month in a row of growth in U.S. cow numbers. Estimated U.S. yield per cow in May was 1,757 pounds, up just 22 pounds from a year ago. April’s yield was up 36 pounds from a year ago and March’s yield was up 65 pounds. So, there has been a gradual erosion in milk yield per cow.

The top five dairy states experienced different rates of growth in May’s milk production. California (3,374 million pounds) grew 2.5 percent; Wisconsin (2,056 million pounds) grew 2.2 percent; New York (1,076 million pounds) was even; Pennsylvania (945 million pounds) fell 0.1 percent; and Idaho (936 million pounds) grew 9.0 percent.

It’s unclear how the market will react to this latest milk production report. Milk futures today at the CME closed before the report was released. The 2006 average Class III price based on June through December futures will average $11.87 per cwt for the year, about a dollar per cwt below the most recent five year average. But today’s milk production report could work both ways. On the one hand it demonstrates that the rate of growth in the milk supply is slowing. On the other hand, cow numbers continue to grow. The fear is that if the rain in the Northeast and heat in the West stops, we could see a resurgence in 4-5 percent rates of production growth.

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