Dairy’s Slow Slog to Recovery

Published on: 12:26PM Apr 27, 2009

By Jim Dickrell

With a $5 gap between most dairies’ cash costs and their mailbox milk price, I would have predicted a much more rapid drop in the nation’s milk supply.

Yes, milk supply is slowing, but at a glacial pace. January was actually up 1%. February, when adjusted for last year’s leap year, was down just 0.07%. And March was down a whopping 0.3%. Follow this link to the USDA report.

But remember, these numbers are compared to last year. More disturbing, however, is when you look at milk production per day through the first three months of 2009. U.S. milk production for every day in January averaged 520 million lb. In February, it jumped to 527 million lb., and in March, it climbed to 530 million lb.

Milk per day also isn’t slowing in the top five dairy states: California was pumping out 111 million lb. in January, and 113 million lb. in March.

Wisconsin went from 66 million lb. in January to 68 million lb. in March. New York, Idaho and Pennsylvania are each producing as much milk per day now as they were in January. In fact, Pennsylvania is up 1 million lb.

Cow numbers, over this same period, are starting to come down—29,000 fewer cows in March than in January. But of the top five states, only California, down 8,000 head, and Idaho, down 5,000, show appreciable declines. Wisconsin is actually up 1,000 cows.

Cows sent to slaughter are running nearly 100,000 ahead in the first quarter of 2009 compared to 2008.  But what this tells me, at least in many areas, is that producers are filling those empty freestalls and tie stalls with heifers. 

And maybe with a bit more feeder space available, the remaining cows can grab a couple more pounds of dry matter and put 5 lb. more in the bucket. Remember, the same thing happened with USDA’s diversion program back in the 1980s.

The unknown X factor in this equation is dairy producer liquidity. The 90 days or more of $5/cwt. losses are bleeding cash reserves dry. While farm management recommendations are to have six months of reserves, I would bet few do. So there could be a tsunami of culling (and foreclosures?) coming in the next 90 days. 

And then there’s the Cooperatives Working Together Program (CWT), which seems to have taken a lifetime to get the 7th round organized. Sign-up deadline is this Friday, May 1. It’ll take another couple/three weeks for CWT to sort out the bids.

If it’s 300,000 cows that get ear tagged for slaughter, they would represent 3.2% of the national herd. My guess it will be less than that, but who knows? But even if that number gets tagged, it will take awhile to work those cows through the system.

Hopefully, lower retail prices for milk, cheese and hamburger will translate into higher sales of milk shakes and cheeseburgers this summer. 

But it’s still going to be a slow slog to positive cash flow for many producers.

—Jim Dickrell is editor of Dairy Today. You can reach him via e-mail at [email protected].

This column is part of the Dairy Today eUpdate newsletter, which is delivered to subscribers biweekly and includes dairy industry analysis, dairy nutrition information as well as the latest dairy headline news. Click here to subscribe.