Dairy Market Update: Milk Production Booms, but Sales Lag

As we near the halfway point of 2006, U.S. farm milk production is booming, but growth in demand for milk and dairy products is not keeping pace.

Total U.S. farm milk production in the first five months of 2006 was 4.4% higher than during the same period last year, according to U.S. Department of Agriculture (USDA) figures. This jump in production came from more milk cows in the national dairy herd (103,000 more in May 2006, up 1.1% from last May) and more milk produced per cow (up 3.3% on average for January through May when compared to the same period last year).

Not surprisingly, production of manufactured dairy products is also greater this year, according to USDA. For the first four months of 2006, U.S. butter production increased 15.4% over the same period last year, and production of nonfat dry milk rose 18%. Total U.S. cheese production increased 1.7% during the same period, with American-type cheese up 1.0% and all other types showing a 2.2% increase.

Fluid milk sales have not followed the same boom in growth, however. Estimated total fluid milk sales were up only 0.3% for January through April when compared to the same period last year. Sales of whole milk products during this period were significantly lower than last year; white whole milk product sales were down 2.9%, though fat-free and reduced-fat milk sales increased.

Sales of manufactured dairy products also grew more slowly than either farm milk production or dairy product production, USDA reports. For the first quarter of 2006, estimated commercial sales of butter were 4.7% greater than sales in the first three months of last year. American cheese sales were up 4.7%, but sales of other-than-American cheeses and nonfat dry milk both decreased 0.5% during the quarter.

Meanwhile, USDA has purchased over 60 million pounds of nonfat dry milk under the Dairy Price Support Program between late March and mid-June. These purchases, which are not included in USDA's commercial sales estimates, represent more than 500 million pounds of skim milk. USDA forecasts that it will purchase a total of 110 million pounds of nonfat dry milk by September 30, the end of the government's fiscal year.

Posted June 26, 2006