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Dairy Producers Trimming Herds in Response to Slim Margins

by Lee Mielke

Published: Friday, November 19, 2021

The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."

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 percent, from August, but just 44 million pounds, or .2 percent, above September 2020.

The 24-state total, at 17.3 billion pounds, was up .4 percent 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 .6 percent from 2020, instead of the 1.1 percent 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 .2 percent, on a 5-pound gain per cow, while cow numbers were unchanged. Wisconsin was up 83 million pounds, or 3.3 percent, on a 30-pound gain per cow and 22,000 more cows. Idaho was down .2 percent, on a 25-pound drop per cow, though cow numbers were up 6,000 head. Michigan was up 1.8 percent on 12,000 more cows, offsetting a 20-pound drop per cow. Minnesota was up 2.4 percent on 11,000 more cows. Output per cow was unchanged.

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 percent, above September 2020. Culling in the nine-month period totaled 2.34 million head, up 35,500, or 1.5 percent, 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 percent, 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 percent for the weeks of June 15 and June 22. The percentage in drought areas has declined since then to 40 percent for the week of Oct. 5, and more than 60 percent 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 percent 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 from Chicago-based Commodity and Ingredient Hedging LLC. The Margin Watch 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 percent increase from 2020," the Margin Watch stated. "Year-to-date dairy exports through August are up 12 percent 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."

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