August 23, 2007

High milk prices prompting expansions in the US

Recent hike in milk prices are causing dairy producers around the country to expand their herds and add on to their barns, according to Bob Cropp, Professor Emeritus with the University of Wisconsin Extension.

In his monthly Dairy Situation and Outlook Report, Cropp says cow numbers are increasing every month since May this year.  He said from the onset of 2007, dairy cow slaughter figures were running about 12-percent higher than year-ago levels. But now they have been running below normal as farmers hang on to their animals to maximise their production from older cows.

The report says milk production did not show strong increases in all parts of the country, but states in two major milk producing regions did--the West/Southwest and Upper Midwest. Arizona and California both had increases in milk production of more than 10-percent as it more milk cows.

In the Upper Midwest, Wisconsin had 4.1 percent more milk, Minnesota 3.0-percent more and Iowa was up by 4.6-percent. Cropp says those numbers are a direct result of more milk cows in production this summer.

He also noted that milk prices are driven by dairy product prices as Cropp points out Class III price, in the category of butter, cheddar cheese and dry whey, may go up.  The Class IV price is driven by the price of nonfat dry milk and butter. With the latest USDA milk production report showing cow numbers increasing and a relatively strong increase in milk production, farm level milk prices likely peaked for the year in July.

The Class III price hit a record high in July at $21.38, said Cropp. Both cheese and dry whey prices weakened slightly since then.

Cropps forecasts the August Class III price to be around US$19.80.

But, he said, the latest milk production report and a continuation of some improvement in milk production over a year ago, both cheese and dry whey prices are likely to decline some in September and the months ahead but yet remain relatively strong historically. Cheese prices will decline only as milk and cheese production improve as we move through 2007 and into 2008, he predicts.

He also foresees the September Class III price to hold well above US$18.00 and close to US$19.00--but by December Class III price could approach US$16.00 and drop to US$15.00 first quarter of 2008.