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Milk Production Declines on the Way

Published on: 17:29PM Jun 25, 2009

The chart of the week is weekly dairy cow slaughter. This is an important statistic to monitor because it can indicate the trend in the size of the milk cow herd and thus milk production levels. Dairy cow slaughter for the week ending June 13th was 50% larger than the 5 year average for the week. Dairy cow slaughter has been trending well above last year’s inflated levels for about 7 consecutive weeks. Thus, we anticipate that a notable net reduction in the milk cow herd is likely to occur this month. And milk production is anticipated to decline notably as well. Why is this occurring? It’s fairly well published that milk farmer margins are historically poor…perhaps their worst on record. The current breakeven levels for US dairy farmers is estimated to be around $15 class III milk. The current market is roughly $10. As it stands today, monthly class III milk futures contracts don’t reach $15 until May. So not only are dairy farmer margins currently poor, they don't even have the potential to lock in a profit until late next spring. Yes it is true that dairy cow slaughter this month has been helped by the CWT subsidized herd retirement program. But unless milk prices improve drastically, dairy cow slaughter is likely to remain strong and cause anticipated milk output declines to intensify deep into the fall. Eventually this will be very bullish for the milk and dairy product markets.

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