Major revisions in USDA’s milk production data going back to 2012 were a key highlight of this report. 2012 volumes were revised 213 million pounds higher while 2013 increased by 32 million. Based on the new data, USDA is publishing year-over- year growth of only 0.3% but when calculating on a daily average basis it pencils out to +0.61%. No matter how the number is sliced, 2013 marks the slowest annual growth in milk production since 2009.
California milk production appeared fantastic at 4.7% YOY growth, its strongest monthly percentage since March 2012. But that number is very deceiving given how difficult CA dairies had it during Q1 last year. When comparing milk production growth versus Jan 2012, it is only 0.2% higher. While the drought looms in the near future – which will almost certainly have a negative impact on milk production in that state – milking conditions could not be more ideal today.
To conclude, extraordinary profit margins are finally making their way to the nation’s dairy farms and efforts are underway to expand production. But we believe the nation’s farmers are in no rush to expand their herds given the price volatility of the past five years. In fact, we heard from a number of dairy farmers and their suppliers at the World Ag Expo last week in Tulare, CA that expansion is in fact occurring, but in other commodities like feed and nuts! Until there is confirmation of sustained milk production growth and/or a clear signal that demand is being impacted at these prices, expect dairy commodity prices to remain at elevated levels.