Midwest Milk Production Ramps Up

Published on: 08:51AM May 23, 2014

After waning over the long winter, the milk tide is beginning to turn. Could that pressure dairy prices?

By Will Babler and Luke Strub, Atten Babler Commodities LLC

The world is awash in milk production, but this isn’t easy to see if you are a producer in the U.S. Midwest.

USDA recently reported that U.S. milk production increased 1.0% year over year (YOY) in April 2014, to 17.428 million pounds. The April 2014 year-over-year increase was significantly below the 10-year average milk production growth rate of 1.7%.

Recent U.S. milk production growth appears to be even less impressive when compared to international production growth. Record high milk prices have led to significant YOY milk production increases in Europe and New Zealand, with U.S. milk production trailing significantly. Since November 2013, milk production in New Zealand and Europe has increased 8.5% YOY and 4.6% YOY, respectively. Over the same time period, U.S. milk production has increased by only 0.7% YOY.

U.S. milk production has been hampered by lagging production in the Midwest. Poor feed quality and weather conditions have reduced Midwestern production, with Wisconsin, Minnesota, Iowa, and Illinois experiencing an aggregate 2.6% YOY decline in milk production from November 2013-March 2014.

More recently, however, effects of the adverse weather have subsided, with production beginning to shift back toward normal levels. Aggregate milk production in Wisconsin, Minnesota, Iowa, and Illinois was down only 1.0% year over year in April 2014, which was smallest YOY decline in six months. April 2014 month-over-month (MOM) milk production for Wisconsin, Minnesota, Iowa, and Illinois was up 1.1% on a daily average basis vs. a 10-year national average (April to March) increase of 1.2%.

April 2014 MOM production increases have pushed Midwestern milk production off of previous YOY lows. Midwestern production has converged with Western production, which is off of YOY highs experienced during an abnormally early "spring" flush. Although overall U.S. YOY milk production gains have remained steadily between 0.9% and 1.1% throughout the past four months, an increase in Midwestern production stemming from more favorable weather conditions and high quality new crop forage suggests greater milk production gains are likely going forward.

Future increases in Midwestern milk production could have significant effects for global dairy markets. Combined milk production in Wisconsin, Minnesota, Iowa, and Illinois accounted for between a fifth and a quarter of national milk production in 2013. Other important milk producing states including Michigan, Indiana, and Ohio were also affected by the adverse weather conditions, and experienced below average milk production. A rebound in Midwestern production as spring flush approaches, coupled with strong global milk production and an incentive to maximum output, could put additional downward pressure on milk prices.

Will Babler is a principal with Atten Babler Commodities LLC. The firm serves producers, processors and end users in the dairy industry by providing education, margin management programs and futures and options brokerage services. You can reach Atten Babler Commodities at 800-884-8290, [email protected] or www.attenbabler.com

The information and comments contained herein are provided as general commentary of market conditions and are not and should not be interpreted as trading advice or recommendation. The information and comments contained herein are not and should not be interpreted to be predictive of any future market event or condition. Information contained herein is obtained from sources believed to be reliable, but cannot be guaranteed as to its accuracy or completeness.