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U.S. milk output is slowing due to falling cow numbers and output per cow

The handwriting is on the milk house wall. U.S. milk output is slowing due to falling cow numbers and output per cow, driven by tightening farm margins and dairies exiting the business. The Agriculture Department’s latest preliminary data shows September output at 18.1 billion pounds, down 664 million pounds or 3.5% from August, but just 44 million pounds or 0.2% above Sept. 2020. 

The 24-State total, at 17.3 billion pounds, was up 0.4% from a year ago. Revisions lowered the August 50-State estimate by 101 million pounds from last month’s report, to 18.7 billion, up 0.6% from 2020, instead of the 1.1% reported.

September cow numbers totaled 9.42 million head, down 25,000 from August, after dropping 19,000 from July (27,000 from New Mexico alone), fourth month in a row cow numbers fell from the previous month. The milking herd is still 27,000 head above a year ago. August numbers were revised down 33,000 head. The big story here is the herd dropping 85,000 head from its peak four months ago.

September output per cow averaged 1,918 pounds, down 1 pound from 2020, a repeat of last month, and very unusual for output per cow not to increase.

California milk output was only up 0.2%, on a 5 pound gain per cow, while cow numbers were unchanged. Wisconsin was up 83 million pounds or 3.3%, on a 30 pound gain per cow and 22,000 more cows. Idaho was down 0.2%, on a 25 pound drop per cow, though cow numbers were up 6,000 head. 

Michigan was up 1.8% on 12,000 more cows offsetting a 20 pound drop per cow. Minnesota was up 2.4% on 11,000 more cows. Output per cow was unchanged. New Mexico had the biggest drop, down 12.5%, due to 27,000 fewer cows milked and a 95 pound drop per cow.  

New York was up 1.8%, thanks to 2,000 more cows and a 30 pound gain per cow. Oregon was down 0.9% on 1,000 fewer cows and a 5 pound drop per cow. Pennsylvania was down 2.1% on 7,000 fewer cows and 10 pounds less per cow.

South Dakota again showed the biggest increase, up 14.6%, thanks to 20,000 more cows and a 10 pound gain per cow. Texas was up 2.5%, with 27,000 more cows hitting the parlor and offsetting a 40 pound drop per cow.

Vermont was unchanged across the board. Washington State again had the second biggest decline, down 7.9%, following a 6.6% drop in August. Cow numbers were down 15,000 head and output per cow was down 55 pounds.

The report fed the bulls and Class III futures shot higher in response.

Meanwhile, dairy cow culling may be slowing some though it remained above a year ago for the fourth consecutive month, according to USDA’s latest Livestock Slaughter report. 

The data shows an estimated 264,600 head were sent to slaughter under federal inspection in September, up 3,200 from August and 14,200 or 5.7% above Sept. 2020. Culling in the nine month period totaled 2.34 million head, up 35,500 or 1.5% from a year ago.

In the week ending Oct. 9, 59,400 dairy cows were sent to slaughter, down 1,300 from the previous week, but 2,200 or 3.8% above that week a year ago. 

The Oct. 18 Livestock, Dairy, and Poultry Outlook reported that climatic conditions and high costs of production have likely contributed to the lower cow numbers. The U.S. drought monitor shows the inventory of milk cows in areas of drought was estimated to be 63% for the weeks of June 15 and June 22. The percentage in drought areas has declined since then to 40% for the week of October 5, and more than 60% of alfalfa hay areas have been in drought since the middle of June. The National Oceanic and Atmospheric Administration says the summer of 2021 was the hottest on record for the 48 contiguous States. 

Labor and fuel costs have also been relatively high, according to the Outlook. The semi-annual Farm Labor report says USDA’s National Agricultural Service reported that the average hourly rate for hired farm workers for the reference week in April 2021 was up 6% from the April 2020 reference week. 

Dairy margins did continue to strengthen the first half of October from a combination of surging milk prices and steady to weaker projected feed costs, according to the latest Margin Watch (MW) from Chicago-based Commodity & Ingredient Hedging LLC. The MW credited strong demand for dairy products for helping to support milk prices as milk output moderates due to soaring feed costs

“August U.S. dairy exports exceeded 510 million pounds, posting a 13% increase from 2020,” the MW stated. “Year-to-date dairy exports through August are up 12% from 2020, with nonfat dry milk, cheese, and butter experiencing year-over-year gains in both volume and value from the same period last year.

Recovering economies across the globe and competitive prices relative to other major dairy exporters have helped support U.S. dairy exports, and this demand should continue to help support dairy product prices as milk production slows.” 

“USDA’s October WASDE report raised projections for corn and soybean yield, production, and ending stocks, according to the MW, however, high feed costs earlier this summer has clearly had an impact on milk production.” 

“USDA raised the corn yield projection slightly to 176.5 bushels per acre with production estimated at 15.019 billion bushels and ending stocks pegged at 1.50 billion. The soybean forecast was raised to 51.5 bushels per acre with production estimated at 4.45 billion bushels and ending stocks pegged at 320 million.” 

“While a slight easing in the supply/demand balance for both corn and particularly soybeans has put pressure on the corn and meal markets, prices remain high by historical standards and the presence of La Nina in the Southern Hemisphere will keep risk premium in the market,” the MW concludes.

The U.S. corn harvest was 52% complete, as of the week ending Oct. 17, according to this week’s Crop Progress report. That’s 5% behind a year ago but 11% ahead of the five year average. 60% of the corn crop was rated good to excellent, 1% behind a year ago. The soybean harvest is 60% complete, 13% behind a year ago, but 5% ahead of the five year average. 

Strength was more visible in the Oct. 19 Global Dairy Trade auction as the weighted average was up 2.2%, after holding steady on Oct. 5, and a 1.0% increase on Sept. 21. Traders brought 61.4 million pounds of product to market, down from 63.2 million on Oct.5.

Lactose led the gains, up 5.9%, following a 0.4% gain on Oct. 5. Butter was up 4.7%, after inching 0.4% higher, and anhydrous milkfat was up 2.5%, after a 0.4% rise. Cheddar was up 2.9% after gaining 0.7%. Skim milk powder was up 2.5%, after inching 0.5% higher, and whole milk powder was up 1.5%, after it slipped 0.4% last time. 

StoneX Dairy Group says the GDT 80% butterfat butter price equates to $2.2619 per pound U.S., up 10.3 cents, and compares to CME butter which closed Friday at $1.8350. GDT Cheddar, at $2.0076, was up 5.8 cents, and compares to Friday’s CME block Cheddar at $1.81. GDT skim milk powder averaged $1.5426 per pound, up from $1.5038. Whole milk powder averaged $1.7248, up from $1.7005. CME Grade A nonfat dry milk closed Friday at $1.5375 per pound.

In other global dairy news, the elephant stayed at the feeding trough, considering China's dairy imports in September. Whole milk powder imports hit a record 79.2 million pounds, up 56.3% from Sept. 2020, with year to date imports up 42.5%. Skim milk powder totaled 67.3 million pounds, down 13.8%, though YTD imports are up 34.3%. 

HighGround Dairy’s Lucas Fuess reported in the Oct. 25 Dairy Radio Now broadcast that the reason those imports were down was mostly due to a shortage of product from New Zealand, however competitive prices enabled the U.S. to be the number one supplier in the month.

Cheese imports amounted to 21.4 million pounds, up 9.8% from a year ago and up 42% YTD. 1.2 million pounds came from U.S. vats. China imported 9.4 million pounds of butter, up 10.8% from a year ago, with YTD up 21.9%.

Fuess says China is very aware of a potential protein shortage and is buying product wherever it can, despite plenteous stocks on hand.

Industry sources expect Australian milk output to grow slightly this season, according to Dairy Market News. Favorable milk prices and lower input costs could help farmers maintain profitability, however a cool, wet spring has been both supportive and a hindrance. While slowing output the first few months of the new season, farmers think the added moisture will aid in forage production later. Stretches of drier weather have helped improve milk volumes. 

Spring milk output for New Zealand’s new season is below expectations. Wet conditions are still suppressing early season pasture growth and milk production. Contacts say cold, rainy weather has reduced the quantity and quality of early season pastures. The rain has also delayed crop planting in some parts. While currently a hindrance, farmers feel the added soil moisture could extend pasture growth and crop growth through late spring and early summer. As temperatures warm and paddocks dry out, milk output volumes should grow, and pasture conditions should improve, says DMN.

Prices here at home were mostly higher as traders weighed the week’s GDT, September Milk Production and Slaughter reports, and awaited Friday afternoon’s September Cold Storage data.

The Cheddar blocks closed the fourth Friday of October at $1.81 per pound, up 3 cents on the week but 96.25 cents below a year ago. Only 1 car sold all week.

The barrels finished at $1.8625, up 7.25 cents on the week, highest since Nov. 12, 2020, but 59.25 cents below a year ago when they jumped 25 cents, and are 5.25 cents above the blocks. 19 cars found new homes on the week at the CME.

Cheesemakers tell Dairy Market News that spot milk is not tight but not as open as previous weeks. Cheese demand notes, from both process and other style cheesemakers, are in a seasonal push. Plant employee shortages have contacts concerned about schedules and overworking veteran employees, wage increases, and other logistical concerns. 

Western retail and food service cheese demand is steady to higher. Holiday demand is picking up and export interests are steady. Some cheesemakers are operating at maximum capacity, but others report limitations due to persistent staffing issues. Congestion at ports and trucking issues continue.

Butter climbed to $1.8450 per pound Thursday, highest since May 21, but closed Friday at $1.8350, up 6 cents on the week and 40 cents above a year ago on 30 sales. 

Week to week butter operations are similar. Employee numbers are growing but training new employees is a slow process. Hauling and logistical issues remain. Cream contract negotiations are underway for 2022. Butter market tones are range bound in the near term, according to participants but expectations are more bullish than bearish and less reactionary than other dairy commodities.

Cream is being dispersed in the Pacific Northwest and northern mountain states following last week’s fire at an Idaho butter plant. Cream supplies are, reportedly, near normal seasonal volumes but butter production is steady. Labor issues are causing some to run truncated schedules. Butter demand is strong with contacts reporting some early purchasing from buyers in anticipation of heavy holiday sales. Butter is abundant but the butter plant fire has caused some uncertainties around immediate fresh butter availability, says DMN.

Grade A nonfat dry milk hit $1.54 per pound Monday, highest since Aug. 7, 2014, but closed Friday at $1.5375, up a half-cent on the week and 44 cents above a year ago, with 15 carloads finding new homes on the week.

CME dry whey closed the week at 61.75 cents per pound, 1.50 cents higher and highest since June 14, 23.25 cents above a year ago, with only 2 sales reported.

Dairy remains a big part of the American diet. August numbers are encouraging, starting with butter. August consumption totaled 189.1 million pounds, up 18.7% from August 2020, with year to date disappearance up 5.7%. HighGround Dairy says butter saw the strongest year over year gain since February and the highest August on record.

Cheese disappearance totaled just under 1.2 million pounds, up 4.8% from a year ago, with YTD up 4.4%, driven by both domestic and export demand. 

Nonfat/skim milk powder totaled 211.4 million pounds, down 16.5% from a year ago, following a July gain. YTD is up 1.5%. HGD says it was the steepest year over year decline since May, driven by a collapse in domestic disappearance.

Total dry whey disappearance hit 75.1 million pounds, down 3.9%, with YTD off 1.8%. August was the fourth consecutive month disappearance was down, says HGD, “hurt by weaker exports even as domestic demand eked out a gain.”

The November Class I base milk price was announced by USDA at $17.98 per hundredweight, up 90 cents from October, 6 cents below November 2020, and equates to $1.55 per gallon, same as a year ago. The ten month Class I average stands at $16.57, up from $16.50 a year ago and compares to $16.64 in 2019.

Lee Mielke is a graduate of Brown Institute in Minneapolis, MN. He’s formerly the voice of the radio show “DairyLine,” and his column appears in agricultural papers across the U.S. Contact him at