A tough second quarter has ensued, driven by sufficient milk supply throughout the U.S. during the Spring Flush period coupled with global dairy import demand that remains weaker than ideal levels.
March milk production grew 0.5% versus the prior year, marking the ninth consecutive month of year-over-year growth. The herd size continued to increase as well, up 6,000 head versus February. More notably though, USDA revised February cow numbers 12,000 head higher versus the initial estimate, making for an 18,000 head gain in March versus the initially reported February data. At 9.435 million head, the revised number for herd size would make this the largest herd size of any month since August 2021.
It is possible that USDA will revise cow numbers lower in subsequent data releases, as the herd size data is incongruent with the struggling margins and strong dairy cow slaughter data, which would also increase the milk per cow projection that showed yield up just 0.1% in March, a surprisingly small climb. Regardless, Rabobank estimates milk output will remain higher versus the prior year throughout the remainder of 2023, climbing close to 1% on a calendar year basis.
Dairy product prices have shown mixed trends throughout spring. After falling to the lowest value in almost exactly two years in early April, the NDPSR nonfat dry milk price recovered slightly at the end of the month but remained below $1.20 per pound. In a balanced market, the NDPSR butter price had remained relatively steady in the low $2.40s throughout most of the year to date but slipped slightly lower after Easter. Dry whey trends have persisted lately as the price hovers close to $0.45 per pound. Finally, in cheese, both blocks and barrels have seen decent demand support the market opposite strong production, but abundant milk could reverse the trend quickly before the Spring Flush concludes.
Looking ahead, some price upside is expected as milk slows seasonally, and global dairy demand increases into the back half of the year. Buyers abroad looking to build stocks will encounter affordable dairy commodity prices, with purchasing not impeded because of expensive products. The upside is surely welcomed by dairy farmers who will face another year of high feed costs (among other expensive inputs) driving the cost of production to extreme levels. Margins will not return to the attractive values noted during 2022, but the upside potential is likely after a brutal second quarter.
