After months of not knowing what would happen with U.S. milk production, the numbers show that the trend is now clearly toward growth. The preliminary numbers from the USDA’s August report on milk production showed that milk production was more than 1.5 percent higher than a year ago. The previous preliminary July number was changed from being the same as a year ago to being half a percent higher. The trend toward a return to growth in milk production was also clear in the numbers for many states. Less clear is what rising production growth means for milk prices. Under the Dairy Margin Coverage programme, margins have returned to levels that trigger payments for farmers who signed up for maximum coverage. However, strong domestic consumer demand and market signals suggest that price declines will be limited.
Even though there are more supplies, U.S. dairy export demand is still a little lower than it was in late spring, but it is still near record levels. Over the past few months, wholesale prices for cheese, nonfat dry milk, and dry whey have been going down at different rates, which has caused milk prices to go down as well. However, most of these prices seem to have found a floor and are even slowly going back up. This month, the USDA raised its predictions for the next two years about how much milk will cost. The price of butter is still going up. Retail price inflation for dairy products this year is having an effect on domestic consumption, but that effect seems to be small because dairy demand isn’t very flexible. In some cases, any drop in domestic demand has been partially offset by strong export sales.
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