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Dairy sector seeing some market improvements

Herd expansion slowing as supply glut challenges sector.

Krissa Welshans 1

May 30, 2018

3 Min Read
Dairy sector seeing some market improvements

Many of the key dairy market statistics reported for March and April indicated that milk prices for U.S. dairy farmers are on the road to improvement, according to the May “Dairy Market Report” from Dairy Management Inc. (DMI) and the National Milk Producer Federation’s (NMPF).

According to the report, improvements included a rise in the national average all-milk price in March, higher prices in April for the four dairy products that underpin the overall milk price structure in the U.S., stronger domestic consumption, surging exports and a reduction in previously excessive stocks of those key dairy products.

“Domestic commercial use of milk in all products showed a bit more robust growth compared to recent months during the first quarter of 2018, with particular strength in butter and other than American-type cheese,” the groups noted.

Total domestic sales of fluid milk products, on the other hand, have continued to decrease at a generally consistent rate of close to 2% per year since last summer, they added.

In terms of exports, however, the report said March exports were the second highest ever for the month of March, at 17.3% of domestic solids production.

“Double-digit increases were reported for all products reported here during the first quarter of 2018, particularly the large-volume ingredient categories of nonfat dry milk/skim milk powder, dry whey, whey protein concentrate and lactose,” DMI and NMPF reported.

Despite some improvements, the report noted that some ongoing negative indicators still remained as well, including an almost 2% rise in total milk solids production during the first quarter and a decrease of 11 cents in the monthly margin – due to higher feed costs – under the Margin Protection Program from February to $6.77/cwt. in March.

Expansion slowing

With the U.S. milk sector still enduring challenges due to a supply glut, the DMI/NMPF report did share the good news that expansion of the U.S. dairy cow herd is slowing.

“Throughout 2017, the year-over-year growth rate of cow numbers swelled from 0.6% to 0.8%, then receded back down to 0.5%,” the report said. “It dropped further to 0.4% during the first quarter of 2018.”

Over the same period, the groups said growth in milk production per cow dipped to as low as 0.4% year over year. However, it has since returned to above 1% during the first quarter. The report said growth in milk production for most of the year remained below 2% on a moving three-month average basis. Annual growth in milk solids production has been running 0.4% above the rate of annual milk production growth at the beginning of 2018.

Looking ahead

From June 2017 through April this year, the DMI/NMPF report pointed out that the U.S. Department of Agriculture has steadily lowered its monthly forecasts for the national average milk price for all of 2018 by a total of $2.75/cwt. In the May forecast, however, USDA abruptly reversed course, with the midpoint of the range for its forecast up 60 cents/cwt. from a month earlier.

The report said Chicago Mercantile Exchange dairy futures by mid-May were indicating that the U.S. average all-milk price would be about $17.05/cwt., another 60 cents/cwt. above the USDA May forecast midpoint. Additionally, the report pointed out that USDA’s May update also reduced the outlook for 2018 milk production by 300 million lb. and began projecting 2019 U.S. milk production to be 1.3% over 2018 production.

“This would indicate that the department expects U.S. milk production growth to continue to slow over the next year couple of years,” DMI and NMPF explained.

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