Milk Supply Burdensome in the Plains
Dairy producers in the heartland have been pumping out the milk. In each of the past seven weeks, processors have bought at least some loads of spot milk for as much as $10/cwt. below the class price, according to USDA’s Dairy Market News.
Sarina Sharp, analyst with the Daily Dairy Report, says that “such steep discounts sometimes occur when dairy manufacturing slows during holidays or when milk output surges during spring flush, but late-January fire sales are a sign of chronic oversupply,” Sharp said. “Persistent labor issues, technology troubles, severe weather, and trucking delays have been making matters worse.”
Last year, expansion of both milk and cow numbers was concentrated in USDA’s Central region, an area of the country that stretches from Texas to the Dakotas, eastward to the Great Lakes states, and through much of Appalachia. In the fourth quarter of 2022, dairy producers in the Central region milked 39,000 more cows than in the final three months of 2021, and milk output climbed 2.2% over the same period.
Sharp noted that formidable growth in the Plains states drove much of the country’s expansion. Texas alone accounted for 39% of the year-over-year growth in U.S. milk production in the fourth quarter, followed by South Dakota, with an 18.5% share, Iowa with 16.5%, and Kansas with 8.4%.
“Dairy processors in these states are overwhelmed,” Sharp said. “Supply has backed up due to a Midwestern cheese plant that is on the fritz, and some dairy producers in the Northern Plains have had to dump milk.”
Sharp added that while this loss of milk means slightly less cheese was being produced while the plant was down, January’s and February’s Dairy Products reports will show that more than a month of steep discounts and cheap milk has resulted in robust cheese production.
“Cream is also a bargain in the Midwest, and butter churns are ramping up production accordingly,” she noted. “The stage is set for continued pressure on cheese and butter values—at least in the short term.”
USDA’s annual Cattle report released last week showed there were only 2.77 million dairy heifers expected to calve and enter the milking herd this year, a drop of 2% compared to last year and the smallest inventory since 2004.
“For years, high feed costs and low milk cow values discouraged dairy producers from raising heifers,” Sharp said. “In 2019, the average price of springing heifers dropped to $1,140 per head. Adjusted for inflation, that was the lowest value ever recorded.”
While springing heifer prices have bounced back over the past three years, heifer numbers have not. Today’s scarcity of dairy heifers suggests springer prices will rise further, adding to the cost of stocking new facilities and deterring growth in U.S. milk supplies longer term, she noted.
By FRAN HOWARD
February 9, 2023