Herd liquidation remains active as profit margins stay red

by Ron Sterk
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WASHINGTON — Monthly milk production dipped below a year ago for the first time in about five years, showing producers’ heavy liquidation of dairy cattle already was having an impact on U.S. milk supply, data from the U.S.

Department of Agriculture indicated.

Total U.S. March milk production was 16,416 million lbs, down 42 million lbs, or 0.3%, from March 2008, the U.S.D.A. said in its latest Milk Production report. It was the first monthly year-over-year decline since June 2004 outturn was below that of June 2003. February milk production in 2009 and 2005 was down from a year earlier, but both were compared with leap years when the previous February had an additional production day.

In its April 16 Livestock, Dairy and Poultry Outlook, the U.S.D.A. forecast U.S. 2009 milk production at 187.8 billion lbs, down 1% from 190 billion lbs last year. If realized, the decline, albeit small, would be the first drop in annual milk production in eight years. Through 2008 milk production increased 24,660 million lbs, or 15%, from 165.3 billion lbs in 2001, which was the last year-over-year decline.

"Milk production is forecast to decline in 2009 on the basis of smaller herd size and a scant yield (milk per cow) increase over 2008," the U.S.D.A. said in its outlook.

Cumulative weekly dairy cow slaughter through the first quarter of 2009 was up 24% from the same period in 2008, the U.S.D.A. said.

"Declines in milk prices, compounded by dry conditions, especially in California and the Southern Plains, have led to an increase in dairy cow slaughter since mid-2008," the U.S.D.A. said. "More recently, rapidly declining milk prices, accompanied by the producer-funded Cooperatives Working Together (C.W.T.) program, have been a key motivation for increases in dairy cow slaughter."

The C.W.T. program removed 50,630 dairy cows from production mainly in the first quarter of 2009, the U.S.D.A. said. Bids on another C.W.T. herd reduction buyout, the seventh since 2003, are set to close May 1.

Dairy cow slaughter was above year earlier levels for much of 2008, the U.S.D.A. said, but surged significantly in the three-month period beginning in December. U.S. dairy cow slaughter in December 2008 was up 12%, January was up 19% and February was up 17% from corresponding months a year earlier, according to U.S.D.A. data.

"The liquidation has been especially notable in the mountain western states," the U.S.D.A. said. "The liquidation appears to be strongest in those regions that expanded most rapidly in the last few years." Slaughter exceeded year-earlier levels by 46% in December and 118% in January for the New Mexico, Oklahoma and Texas region, with January up 83% and February up 49% in the Idaho, Oregon and Washington region.

The department forecasts dairy herd liquidation will continue throughout 2009 with the U.S. herd expected to total 9.2 million cows for the year, and fourth quarter numbers averaging 300,000 head fewer than in the fourth quarter of 2008.

Although feed prices are down sharply from their peak in mid-2008, projected 2009 average corn and soybean meal prices were revised up by the U.S.D.A. in April from March forecasts. Higher feed costs will continue to pressure profits for milk producers and result in only a slight gain in milk production (yield) per cow. The U.S.D.A. projected an average of 20,465 lbs of milk per cow to be produced in 2009, up only 69 lbs, or 0.3%, from 2008.

Average monthly milk prices through March have dropped 41% since July 2008 and have declined 48% since peaking in November 2007, the U.S.D.A. said, which when coupled with higher feed costs during much of that time, resulted in significant profit losses for producers.

In its April World Agricultural Supply and Demand Estimates, the U.S.D.A. projected the price of all milk paid to producers to average in a range of $11.85@12.35 a cwt in 2009, up 50@60c from its March projection but well below $18.32 last year and $19.13 in 2007. The increase was attributed to the expected drop in supply as the dairy herd is reduced. On a quarterly basis, milk prices were projected to bottom in the April-June period, increase slightly in the July-September period and rise more substantially in the final quarter as milk supplies subside.

This article can also be found in the digital edition of Dairy Business News, April 2009, starting on Page 14. Click here to search that archive.

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