February milk output shot higher, thanks to an increased herd size and favorable weather. The Agriculture Department’s preliminary data in its latest Milk Production report shows output at 17.87 billion pounds, up 5.3% from February 2019; however the data is skewed in that February had an extra “Leap Day” of production than 2019, so adjusting for the extra day, output was up 1.7%.
February output in the top 24 states totaled 17.0 billion pounds, up 5.6%, but after adjusting, it was up 2.0%. Revisions added 40 million pounds to the original 50-state January total, now put at 18.8 billion, up 1.1% from January 2019.
Cow numbers in the 50 states in February totaled 9.37 million head, up 9,000 from January and 18,000 above a year ago. The 24-state count totaled 8.84 million head, up 8,000 from January and 39,000 more than February 2019. Revisions added 13,000 cows to the January head count, now put at 9.36 million head, 7,000 above a year ago.
Output per cow in the 50 states averaged 1,841 pounds, after adjusting, up 27 pounds from a year ago or 1.5%.
Adjusting for the Leap Day, California was up 84 million pounds or 2.6% from a year ago. Cow numbers were down 3,000 but output per cow was up 52 pounds. Wisconsin was down 0.8% on 10,000 fewer cows and 1 pound less per cow.
Most analysts view the report as bearish. FC Stone points out “We are now 7 months into the herd expansion and we’re up 55,000 head,” and it appears that “Farmers are responding to margins just like they used to.”
Dairy cow culling took a drop in February. The USDA’s latest Livestock Slaughter report shows an estimated 266,100 head went to slaughter under federal inspection, down 32,400 head or 10.8% from January and 12,800 head or 4.6% below February 2019. The two month total shows 564,600 head were retired from the dairy industry so far in 2020, down 12,700 head or 2.2% from 2019.
Meanwhile, the USDA’s latest Livestock, Dairy and Poultry Outlook reports that the 2020 forecast for the number of milk cows was raised to 9.345 million head, 10,000 higher than last month’s forecast. Milk per cow is now forecast at 23,780 pounds, 5 pounds lower than the previous forecast. With the higher projection for milk cows more than offsetting the lower projection for milk per cow, the milk production forecast was raised 300 million pounds to 222.3 billion, says USDA.
Powder pulled Tuesday’s Global Dairy Trade lower, as the world falls to its knees from COVID-19. The weighted average of products offered dropped 3.9%, following the 1.2% drop on March 3, 2.9% on Feb. 18, and the 4.7% plunge on Feb. 4.
Skim milk powder led the declines, down a whopping 8.1%, followed by whole milk powder, down 4.2%, after declines of 3.2% and 0.5% respectively March 3.
Lactose led the gains, up 4.9%, and GDT Cheddar was up 2.6%, after it dropped 4.7% last time. Rennet casein and anhydrous milkfat were both up 1.0%, after the milkfat slipped 1.7%. Butter inched up 0.3%, following its 1.0% rise last time.
Checking the latest demand data, American-style cheese disappearance in January plummeted to the lowest level of any month since July 2017, according to analysis by HighGround. “January marked the sharpest year over year percentage decline since July 2011,” says HGD.
Butter domestic disappearance was down versus last year’s record high January demand but still marked the highest January domestic demand since 2016, aside from the prior year, says HGD.
Domestic nonfat dry milk disappearance dropped to the lowest January volume on record but “was on trend with the declines also seen in November and December,” says HGD.
HGD’s Lucas Fuess warned in the March 23 Dairy Radio Now broadcast that they expect a severe decline in restaurant and food service sales, which are a key driver of dairy demand; however retail and grocery demand has been exceptionally strong and in some areas excess milk has been flowing into Midwest fluid plants which, in some cases are seeing record sales.
Demand depends on how long quarantines and social distancing remains in effect, he said, all of which have occurred just as we reached peak spring flush milk volumes. The resulting lower milk prices will hit dairy farmers just as they were starting to get used to profitable prices again, after several years.
Fuess says they are closely monitoring trade, especially as things improve in China. They expect there will be some increase in demand there but that is dependent on where inventories are overall.
FC Stone echoes those remarks on consumer demand, writing that “while toilet tissue and bottled water are flying off retails shelves throughout the country, dairy products are also being swept up. Everything from ice cream to fluid milk seems to be on the short shopping list for consumers and manufacturers are feeling it.”
FC Stone’s Dave Kurzawski says “We estimate about half of the cheese that moves at food service is on pizza. As long as people are comfortable having pizza delivered, some of the blow to food service is going to be buffered. If you combine with to-go/drive throughs still open, maybe the dairy hit won’t be as bad as feared,” though “The presumption is demand will drop off significantly.
“Generally, we’d expect the lion’s share of this (excess milk) to get pushed into Class IV markets with spillover into Class III,” he wrote. “However, this is not the Christmas shut down. This is not summer break. This is survival time. We expect some additional fluid milk to slosh around, but we don’t think it will be quite as bad as expected.”
The USDA’s Dairy Outlook also spoke to the situation, stating; “There are two types of potential effects of the coronavirus (COVID-19) on the U.S. dairy industry. First is supply chain disruptions and second is the lower global demand for dairy products resulting from weaker economic conditions.”
“Since data concerning domestic and foreign supply and demand quantities are not yet available for February or March, the extent of the effects on the US dairy industry thus far are unknown. Health authorities are highly uncertain of the severity and duration of the epidemic and macroeconomists are highly uncertain of the potential impact on the global economy,” the Outlook states.
The latest Margin Watch from Chicago-based Commodity & Ingredient Hedging LLC stated that “Dairy margins deteriorated further over the first half of March as ongoing fallout from the COVID-19 global pandemic weighed heavily on the dairy complex. Social distancing measures enacted by both the federal and local governments to stem the spread of the virus are causing significant anxiety as they negatively impact demand. The Class IV market in particular has come under extreme pressure with both butter and powder prices falling sharply.”
The MW warned: “There are also supply concerns stemming from uncertainty over how milk processors may have to handle an outbreak of the virus among employees, with potential plant closures a distinct possibility.”
National Milk Producers Federation President and CEO, Jim Mulhern, spoke to assure consumers concerning dairy products, stating: “U.S. dairy farmers are stewards of a product that’s harvested around the clock, 365 days a year, and they understand the importance of steady production as well as steady consumption. The U.S. food-supply chain is more than capable of meeting demand, and consumers should be reassured that milk and dairy products will continue to be produced and available in the coming weeks and months.
“Dairy supplies aren’t experiencing production interruptions at this time, and dairy farmers and processors will continue to do what they do best: produce safe, quality products every day for consumers in the U.S. and worldwide. We will vigilantly work with all aspects of the dairy supply chain to ensure these products get to everyone who needs them and that, as has always been true, dairy will remain something consumers can count on.”
The April Federal order Class I base milk price is $16.64 per hundredweight, down 82 cents from March but 88 cents above April 2019 and the highest April Class I since 2014.
That put the 2020 Class I average at $17.67, up from $15.54 at this time a year ago and compares to $14.29 in 2018.