USDA's report on September milk production was finally released on November 1st. Not since the February milk production report were milk cow numbers and milk per cow reported. Milk cow numbers were increasing starting with November of last year through February and were thought to be continuing to increase. But, this report shows cow numbers higher in July than February, but declined both for August and September. September cow numbers were down 19,000 head from February and were just 0.1% higher than a year ago. While cow slaughter has been running about 3% higher than a year ago in recent weeks the January cattle inventory report showed more than enough replacements to grow the nation's cow herd. And with dairy producers facing much more favorable margins (returns over feed cost) than a year ago, it is surprising that there weren't more cows for September than what this report shows. Milk per cow for September was estimated to be just 0.8% higher than a year ago. This was also a smaller increase than expected since milk per cow for September a year ago was running 0.5% below the previous year. The net result was September milk production only 1.0% higher than a year ago. This marks the sixth consecutive month that milk production has been above a year ago. But, with each monthly increase greater than the previous increase, and with the 2.4% August increase, it was expected that increases of near 2% would be likely for the remainder of the year, especially since a year ago milk production dropped below year ago levels for both September and October..

The relative increase in milk production was lower for September than August for several key states. September increases for September versus August were: Arizona 5.5% vs. 2.2%, California 0.4% vs. 2.9%, Texas 1.4% vs. 3.3%, New York 1.8% vs. 4.2%, Pennsylvania 1.5% vs. 2.8%, Iowa 5.5% vs. 8.0%, Minnesota 0.0% vs. 0.9%. Wisconsin's production had little change with September up 1.0% and August up 0.9%. Some states experienced greater declines for September than August. Idaho had a 1.5% decline for September vs. 0.3%for August. New Mexico had a 1.4% decline for September vs. 1.2% for August.

Other than butter dairy product prices have strengthened during the month of October, but averaged for the month within a penny of September averages. Butter on the CME started the month at $1.61 per pound but ended the month at $1.50 and averaged $1.53. CME cheddar barrels started the month at $1.715 per pound, ended the month at $1.83 and averaged $1.77. CME 40-pound cheddar blocks started the month at $1.765 per pound, ended the month at $1.89 and averaged $1.82. Dry whey averaged $0.56 per pound for the month. With little change in these dairy product prices the October Class III price will be about $18.25 compared to $18.14 for September.

While butter averaged the same as September nonfat dry milk continues to show strength trading around $1.85 per pound the end of the month. The Class IV price which was $19.43 in September will increase to about $20.20 for October.

Stocks of dairy products have tightened some as domestic sales are a little stronger and exports run well above a year ago. Cheese buyers had not been very aggressive early in the month but began to realize that more inventory was needed for the up-coming seasonal demand Thanksgiving through Christmas and are now more active in buying which strengthen the cheese price towards the end of October. Compared to year ago, August exports of cheese were 40% higher. Nonfat dry milk exports were 19% higher, dry whey exports 33%b higher and butterfat exports 237% higher. On a total solids basis August exports were equivalent to 17.5% of total milk production. From January through August exports were equivalent to 15.4% of total milk production compared to 13.6% a year ago.

While stocks of butter and cheese are still higher than a year ago, stocks have declined for four consecutive months. September 30th stocks compared to a year ago were: Butter +19%, cheddar barrels +3% and total cheese stocks +3%.

With increased domestic sales and strong exports both the Class III and Class IV price will show further strength for November. A November Class III price of about $18.75 and a Class IV price of about $20.60 seems likely. At these milk prices and lower feed costs than a year ago, milk production will continue to run above a year ago. However, with this last USDA report on September milk production, perhaps the increase in milk production may not be as strong as expected. More milk and after seasonal orders of butter and cheese are filled milk prices will begin to decline by December. But, the Class III price may stay near $18.00 and the Class IV price above $20.00. For the first quarter of next year the Class III price could stay in the low $17s and the Class IV price in the mid-19s. With the recent increase in cheese prices Class III futures also strengthened for November and December and for the first quarter of next year, and are close to these predictions.

By Bob Cropp, Professor Emeritus
University of Wisconsin Cooperative Extension
University of Wisconsin-Madison
Return to Industry Buzz.