Following months of uncertainty about the direction of U.S. milk production, numbers now indicate the trend is clearly toward growth. The preliminary numbers from USDA’s August milk production report indicated milk production more than a percent and a half higher than a year earlier, while the previous preliminary July number was revised from flat versus a year earlier to half a percent above it. The tilt toward resumed milk production growth was also clearly evident in the numbers for many individual states. What rising production growth means for milk prices is somewhat less clear; while margins under the Dairy Margin Coverage program have returned to payment-triggering levels for farmers enrolled in maximum coverage, robust domestic consumer demand and market signals imply a floor to price declines.
While supplies increase, U.S. dairy export demand continues to recede slightly from its torrid pace from late spring but remains near record levels. Cheese, nonfat dry milk, and dry whey wholesale prices have been receding at various rates over the past several months, taking milk prices down with them, but most of these prices appear to be finding a floor and even moving back up moderately. This month, USDA increased its milk price forecasts for the next two years. Butter prices are still increasing. While this year’s retail price inflation for dairy products is affecting domestic consumption, the relative inelasticity of dairy demand seems to be making that effect modest, and in some cases any drop in demand has been partially offset by strong export sales.
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Provided by NMPF