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Cropp: The Slowdown in Milk Production Will Help Prices
Wisconsin Ag Connection - 06/28/2012

Although the continuous increase in total milk production is keeping prices lower than what they could be, there is some good news on the horizon for the dairy industry. Professor Emeritus Bob Cropp with the University of Wisconsin Cooperative Extension says milk production appears to be slowing down in the 23 major dairy states, and cow numbers have even dropped in many of those areas.

In his monthly Dairy Situation and Outlook Report, Cropp says production of dairy products continues to run above year ago levels. Compared to April a year ago, butter production was up 7.2-percent, cheddar cheese 3.6-percent and total cheese 2.1-percent higher. But the latest sales data for January through March shows those numbers lower.

"Dairy exports continue to be positive compared to a year ago," he says. "Exports for the January through April period were up eight-percent for nonfat dry milk/skim milk powder, whey proteins up two-percent, cheese up 12-percent and lactose up five-percent."

On a total solids basis, exports were equivalent to 13-percent of U.S. milk production--which is the same as a year ago when milk prices were at record levels.

January through April milk production on a daily basis was four-percent higher than a year ago due to both increases in cow numbers and more milk per cow. But, cow numbers dropped by 3,000 head in May and with milk per cow up 1.2-percent, total milk production increased just 2.1-percent.

"Estimates show that that after increasing month-to-month since October of 2010, cows numbers dropped by 4,000 head in May."

Cropp says another point of good news is the improved market prices during June for both butter and cheese. CME butter averaged $1.35 per pound in May and is now $1.52. CME barrel cheddar cheese averaged $1.47 per pound in May and is now $1.66 and 40-pound cheddar blocks averaged $1.52 per pound in May and are now $1.64.

"The June Class III price could show some strength at around $15.65 compared to $15.23 in May," he says. "However, the Class IV price is likely to show little change from the $13.55 May price. The Northeast and Midwest have experienced hot weather and forecast is for temperatures to remain hot for the week ahead. This hot weather along with milk production on its seasonal decline and lower milk composition during the summer has improved the outlook for milk prices over what appeared to be the case a month earlier."

He predicts that the Class III price could near $16.75 for July and be above $17.00 by August and peak near $17.50 by October or November.

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