Milk Production and Dairy Product Output Continue to Climb

The dairy industry has been expanding on many fronts during 2007, as witnessed in recent market reports from the U.S. Department of Agriculture (USDA). The July report on milk production shows that monthly farm output has surpassed milk production for 2006 during each month of this year. Year-to-date (through May) milk production was up 1.0%, and June's monthly increase was also 1.0%, so the cumulative remains at that level for the first half of the year. The increased production through May is almost one billion pounds of milk. USDA forecasts this trend to accelerate, with output for the year exceeding 2006 by 1.4%.

This additional milk is going to an array of dairy products. Starting with fluid products, total fluid sales are up 1.2% through May. Although organic products lead this charge with a combined growth rate of 33%, they represent a relatively small share of the market (2.4%). Other increases came from non-organic fat-reduced white milks, each up 1.4% or more year-to-date.

Output of many manufactured products is rising as well. Through May, spoonable yogurt was up 7.0%, and frozen yogurt also rose by 0.4%. Total lowfat ice cream and lowfat cottage cheese have grown 13.6% and 3.8%, respectively. Total cheese production has increased 2.5% with Italian-type leading the way (+ 4.5%) over American-type (+ 1.1%). Production of whey and lactose by-products has increased as well. Total dry whey is up 2.0%, while lactose is up 2.4%.

This additional output is satisfying increased demand in both domestic and export markets. Data from these two markets are combined as "commercial disappearance." For the period January to May 2007, commercial disappearance of milk in all products and forms was up 2.9%. Butter disappearance was up 15.5%, and all cheese disappearance grew by 3.2%. NFDM disappearance had been in negative numbers for much of 2007, but large increases in April and May net to a 1.1% increase.

Strong demand for dairy products has buoyed prices during this time of increased production, both at the farm and wholesale levels. The all milk price for the first half of 2007 was $16.60/cwt, 30% higher than in 2006. USDA forecasts an average all milk price for the full year to be more than $19.00/cwt. This would be a record-high annual all milk price, surpassing the 2004 average by at least $2.94, or 18%.

At the product level, NFDM (central states) averaged $1.6213, up 84% while block and barrel cheddar cheese (Chicago Mercantile Exchange) averaged $1.5392 (+ 28%) and $1.5299 (+30), respectively, during the first half of the year. Butter (CME) has averaged $1.3537, up 13% over the same period last year.

There are a few notable products without increases, such as whey protein concentrate, off 10.9% due to a price discrepancy with dry whey. Nonfat dry milk (NFDM) also is down 9.3%, but that's not as much as its standardized cousin skim milk powder, which has declined 46.5% versus last year. Butter production is also lagging behind 2006, with output down 0.3%.

Posted July 30, 2007