The weak milk and dairy product prices experienced throughout the first half of 2016 led to an expectation from most industry analysts that supply cuts would take place around the world. While this prediction has materialized for the most part, production growth in many large U.S. dairy states has continued to take place. This casts a shadow on the milk price outlook for 2017, even as dairy demand appears to be on the upswing.

The large dairy exporting nations of Australia (-9.4 percent), New Zealand (-1.9 percent), and the European Union (-0.7 percent) have all seen milk supply reductions in the past six months relative to a year ago. However, U.S. milk production has registered a 1.7 percent growth. Digging into monthly production data for specific states uncovers a few areas of growth that have overshadowed other supply cutbacks around the country.

Milk production in Texas was 5.6 percent higher from May to October 2016 than the same period a year ago, because cow numbers have grown by 33,000 head since the beginning of the year. This took place even though snowstorm Goliath wreaked havoc in the region. New York has seen a 4.5 percent rise in production, though virtually all of this growth is due to productivity gains.

The Rocky Mountain area states of Arizona, Colorado, and Idaho have combined for a 3.6 percent jump in milk production over the last six months, while the Grain Belt states of Illinois, Indiana, Iowa, Kansas, and South Dakota have improved output by a combined 3.3 percent. Similar growth of 3.3 percent has occurred in the Great Lake states of Michigan, Minnesota, and Wisconsin. All other areas of the U.S. have totaled a 40,000 head decline in dairy cows and a 0.7 percent decline in milk production.

USDA is projecting further expansion of U.S. milk production by 4.5 billion pounds in 2017. It will take strong demand to keep milk prices profitable as key U.S. dairy states continue to grow milk supplies. Let’s hope that demand, especially international demand, can outweigh the continued growth in 2017 U.S. milk supplies.

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(c) Hoard's Dairyman Intel 2016
December 12, 2016

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