Wisconsin Ag Connection - Cropp: Dairy Prices Won't Rise Until Production Falls More

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Cropp: Dairy Prices Won't Rise Until Production Falls More
Wisconsin Ag Connection - 07/24/2009

Dairy product and milk prices won't show much improvement until milk production falls below year ago levels. That's the assessment of Dr. Bob Cropp, professor emeritus with the University of Wisconsin Cooperative Extension. In his monthly Dairy Situation and Outlook report, Cropp says the normal seasonal decline in milk production and the seasonal strong fall sales of dairy products will strengthen milk prices in the months ahead. But he says milk production may need to fall two or three percent below year ago levels to get the milk price at a level to stop the financial stress now being experienced by dairy producers.

"That means the Class III price needs to get to at least the $15.00 to $16.00 range. This may not happen until 2010," Cropp wrote in this month's report. "It appears now that the Class III price may be near $12.50 by September and in the low $14's by December. Hopefully prices will do better than this and that is possible. If milk production drops off faster and/or sales show some improvement, prices could be better."

National Milk Producers Federation completed its seventh round of CWT herd liquidation the end of June which removed 101,000 cows, and announced the opening of bids for a 8th round of CWT. Cropp feels this action will help to further reduce cow numbers and slow milk production.

Meanwhile, it appears milk production is starting to drop below year ago levels. USDA revised May's production for the U.S. to be 0.4% higher than a year ago but estimated June's production to be down 0.2%.

Looking at the regional trends, milk production in the west continues to show strong declines. Compared to a year ago in June California had 2.0% fewer cows with 2.2% less milk per cow resulting in 4.1% less milk production. While cow numbers were slightly higher at 0.2%, 1.1% less milk per cow gave Idaho a 0.9% reduction in milk production. Arizona had a 5.4% reduction in cow numbers and 0.5% less milk per cow resulting a 6.1% less milk. Cow numbers were down 3.8% in New Mexico, but this was offset by 4.1% more milk per cow. Texas is the exception in the West with cow numbers up 2.6% and milk per cow up 1.2% resulting in 3.8% more milk.

Other states with fewer milk cows that resulted in the following reductions in milk production were: Missouri -4.4%, Ohio -1.6%, Utah -2.0%, Vermont -4.6%, Washington -1.2% and Pennsylvania -0.2%. While New York had 0.5% fewer cows this was more than offset with 2.4% more milk per cow netting 1.9% more milk. Florida also experienced 3.3% fewer cows but much improved milk per cow still resulted in 2.3% more milk.

Milk production continues to increase in the Upper Midwest. Wisconsin had 0.4% more cows and 2.4% more milk per cow resulting in 2.8% more milk. Cow numbers were up 1.3% in Minnesota and milk per cow was up 2.2% resulting in 3.5% more milk. While cow numbers were down 0.4% in Iowa 3.0% more milk per cow netted 2.5% more milk.

"In summary, it appears that finally milk production is on a trend below year ago levels. This trend along with the normal seasonal decline in milk production and seasonal strong fall dairy product sales with slowly improve milk prices," he notes.

But Cropp says with expected milk prices dairy farmers will continue to experience financial stress for the remainder of 2009 and into 2010.