Wisconsin Ag Connection - Cropp: Milk Production Needs to Slow Down to Boost Prices

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Cropp: Milk Production Needs to Slow Down to Boost Prices
Wisconsin Ag Connection - 07/30/2010

A professor emeritus with the University of Wisconsin Cooperative Extension says dairy product prices haven't been too bad this summer, considering there is still plenty of cheese stocks in storage. But Dr. Bob Cropp maintains that milk production needs to show a slower rate of growth if producers are going to make more money. In his monthly Dairy Situation and Outlook report, he noted that cheese prices on the CME have continued to increase the past couple of weeks. That's despite the fact that stocks of American cheese were still 5.3-percent higher than a year ago and most since 1986 for this time of the year.

"The increase in meals at home has increased the demand for mozzarella cheese on frozen pizzas as well as reports of improved pizza sales by restaurants," Cropp said. "But, 40-pound cheddar blocks on the CME which were $1.43 per pound the start of July improved to $1.57 as of July 19. Barrel cheese went from $1.40 per pound the start of July to $1.52."

Whether cheese prices will hold at these levels will depend upon the level of milk production. Cropp says recent hot and humid weather in the Northeast, Middle Atlantic and the Upper Midwest is lowering milk per cow. Butterfat and protein levels are also depressed reducing the yield of cheese per hundredweight of milk.

"However, milk production continues to run well above year ago levels," he says. "USDA estimates milk production for the U.S. during June was up 2.4-percent from a year ago. While milk cow numbers were 1.2-percent less than a year ago, milk per cow was 3.7-percent higher. Milk cow numbers have been increasing month to month with numbers up by 40,000 head or 0.4-percent since the end of last year."

He projects that the Class III milk price for July will be near $13.80. Class III futures are still settling below $15.00 for the rest of this year and all of 2011.

"Cheese needs to reach at least $1.60 per pound to get the Class III price over $15.00 and at least $1.70 per pound for a Class III price over $16.00," Cropp emphasized.

Meanwhile, the next round of the CWT program will remove more than 34,000 cows--which will help to reduce cow numbers. But, the more than ample supply of dairy replacements and cow slaughter running as much as 15-percent lower than a year ago in recent weeks does not help to reduce the cow herd.

And another factor being considered is the crop commodity prices. Corn has shown some strength, but soybean meal and hay prices are lower than a year ago.

"Thus, with improved milk prices--more than $4.00 per hundredweight higher than a year ago--and lower over all feed costs returns over feed costs are much more favorable. As a result, some dairy producers are producing all the milk they can to pay off accumulated expenses incurred during last year due to very depressed milk prices."