Wisconsin Ag Connection - Cropp: Dairy Demand Up, But So Is Surplus Production

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Cropp: Dairy Demand Up, But So Is Surplus Production
Wisconsin Ag Connection - 05/25/2012

There is some positive news for U.S. dairy producers in regards to consumer demand for their products. But it may not be enough to off-set the even larger increase in milk production the industry has been seeing as of late. In his monthly Dairy Situation and Outlook report, Dr. Bob Cropp, professor emeritus with the University of Wisconsin Cooperative Extension, said both the Consumer Confidence Index and the Restaurant Traffic Index continue to improve. He also notes that both foreign and domestic cheese sales have been heading upward.

"Export volume and value for March were higher than a year ago due primarily with continued strong sales of cheese, high value whey proteins and lactose," Cropp said. "Exports through March compared to a year ago were five-percent higher for nonfat dry milk/skim milk powder, seven-percent for cheese, nine-percent for lactose, seven-percent for whey protein concentrates, and 16-percent for whey protein isolates, but eight-percent lower for dry whey and 34-percent lower for butterfat."

But, he's quick to point out that domestic sales and exports can't accommodate all of the increase in milk production without lower prices. The report states that with fluid milk sales continuing to run below year ago levels, the increase in milk production needs to go for manufactured dairy products.

"Compared to a year ago, increases in March dairy product production were butter 6.4-percent, cheddar cheese 5.2-percent, total cheese 3.7-percent, and nonfat dry milk 49.9-percent."

On the CME butter is $1.35 per pound, the lowest since October of 2009. Barrel cheddar has been holding around $1.45 per pound and 40-pound cheddar blocks at $1.50.

Simply put, Cropp's message all year long as been: "the growth in milk production continues to put downward pressure on milk prices." He says USDA's estimate of April milk production for the 23 reporting states was 3.3-percent higher than a year ago and up 3.2-percent for the entire country.

"Milk cows which started to increase back in October of 2010 continue to increase with April numbers up 5,000 head from March placing them 1.0-percent higher than a year ago," he says. "Milk per cow also continues relatively strong with April 2.2-percent higher than a year ago. USDA has now revised upward their milk production for 2012 and don't expect cow numbers to decline until 2013."

Another factor in the equation is the dairy provisions in the 2012 Farm Bill, such as the Dairy Security Act--which has been approved by the U.S. Senate Agricultural Committee and now being discussed in the House. The DSA includes margin protection mechanisms where dairy producers could decide to participate and get a $4 per hundredweight margin protection at no cost on 80-percent of their highest annual milk production for any of the past three years. That means many producers are trying hard now to boost their production in order to qualify for larger allowances if the program becomes implemented.

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