Milk production growth slows as prices of dry dairy products continue to slide

by Ron Sterk
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KANSAS CITY — The predicted slowdown in milk production growth finally appears to be developing, but heavy inventories, some nearly 70% above year-ago levels, and strong production of many dry dairy products have kept pressure on prices.

Milk production in the 23 major producing states was 14,750 million lbs in July, up 1.7% from July 2007. It was the smallest monthly year-over-year increase since 1.2% in June 2007 from June 2006, according to U.S. Department of Agriculture data.

"Milk production increases, both this year and next, will be slight," the U.S.D.A. said in its most recent Livestock, Dairy and Poultry Outlook. "Lower forecast prices and lower forecast feed prices combine to maintain dairy herds and hold production relatively steady."

Monthly production will have to slide considerably further in the latter half of the year if the U.S.D.A.’s forecast annual increase of only 2.1% from 2007 is to be realized. Milk production in the first six months of the year was up 3.4% from the same period of 2007, with monthly year-over-year increases ranging from 2.3% to 3.5% (excluding February because of Leap Year). The U.S.D.A. expects only a 0.4% increase in milk production in 2009.

Milk prices paid to farmers have declined modestly this year. In its latest Agricultural Prices report, the U.S.D.A. said the average price paid for all grades of milk was $18.50 a cwt in August, down 14% from August 2007.

Price declines for most dry dairy products have been much greater and are well below year-ago levels, some of which peaked at record highs in the second and third quarters of 2007.

At the end of August, the most dramatic decline was for 34% whey protein concentrate at 45@55c a lb, down 70% from a year earlier. Lactose values at 20@30c were down 64% and dry whey at 20@25c was down 58%. Dry buttermilk prices were $1.10@1.25 a lb, down 41%, and all classes of nonfat dry milk ranged from $1.35@1.52 a lb, down 30% to 33% from the same time last year.

"Whey prices have been declining throughout 2008 as demand has flagged," the U.S.D.A. said.

In its latest Dairy Products report, the U.S.D.A. said July 31 manufacturers stocks of dry dairy products for human consumption ranged from 4% to 68% above year-ago levels. Stocks of nonfat dry milk were 140 million lbs, up 12%, dry whey 56 million lbs, up 4%, whey protein concentrate 41 million lbs, up 61%, dry buttermilk 9 million lbs, up 12%, and lactose 86 million lbs, up 67%.

Only stocks of dry whey and whey protein concentrate, both for animal feed, were down from a year ago, the U.S.D.A. said.

Stocks of several dry dairy products in July 2007 already were above year-ago levels, predicating the eventual pressure on prices. Nonfat dry milk stocks on July 31, 2007, were 50% above year-earlier levels, dry whey was 30% above, lactose was 23% above and dry buttermilk was 68% above. Only stocks of whey protein concentrate for food use were below year-earlier amounts at the time.

Much of last year’s price gains were driven by strong export demand, related in part to the weak U.S. dollar and also to tight supplies in the two other major producing regions of Europe and Oceana. Production and supplies in both of those regions are up from last year, resulting in some easing in foreign demand for U.S. dairy products, although export sales will continue to offer support for dairy prices, the U.S.D.A. said.

The U.S.D.A. projects lower exports in 2009 as the U.S. economy recovers.

This article can also be found in the digital edition of Dairy Business News, September 2008, starting on page 14. Click here to search that archive.

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