Milk Production Decreases in 2019. Is it enough?

Data on milk production and cow numbers is now available for the full year of 2019.  With the decrease in domestic consumption of milk, a corresponding decrease in the growth of milk production is needed.  When there is too much milk produced, inventories swell, and producer milk prices drop.  The good news is that milk production growth has decreased in 2019.  Is it enough?

Here's the highlights:

POSITIVE CHANGES

• The growth in milk production has slowed.  
• Cow numbers decreased in 2019.
• With the slower growth in milk production, cheese inventories have decreased.

BUT

• With higher producer milk prices in the fourth quarter of 2019, the slower growth in milk production is not quite as slow.
• While Cow numbers decreased every month in 2019, the decreases were smaller in the final quarter.

OTHER POSITIVE SIGNS

• Milk per cow has shown a one percent annual increase in 2019.  More milk with fewer cows is a very positive parameter for a lower cost of milk production.
• Component levels in milk have increased.  Producer payments are mostly based on butterfat and protein, so higher levels of butterfat and protein are a positive trend toward lower costs of component production.

This post is primarily an update of the July 2019 post on the growth of the milk supply.  Much of the data shown below is based on 12-month moving averages.  Using 12-month averages eliminates seasonal variations and short-term fluctuations.

One of the most important parameters for a low-cost producer is to make more milk with fewer cows.  In 2019, milk per cow has increased by one percent vs. the prior year (Chart I).  The level of increase is a continuation of a very long-term trend of improved productivity.  Also, as covered in a prior post, component levels are also rising.  Milk volume increases and component level increases per cow together amount to an annual increase of at least 1.5 percent in component production per cow.  This increase will likely fulfill or slightly over fulfill the needed production of milk components.  Therefore, a steady to lower number of cows will be needed for balancing supply and demand.

Chart I - Milk per Cow Percent Annual Increase

The milk supply increases and decreases with changes in the price of producer milk.  When prices are high, production increases and when prices are low, production decreases.  Chart II shows the nine year monthly changes in milk production compared to the prior year.  Milk production was decreasing rapidity in 2018 and 2019 through August 2019, but as milk prices began increasing, optimism of higher milk prices took hold and the amount of milk produced began to increase.

Chart II - Milk Production - Increase vs. Prior Year

Charts III and IV show the 12-month moving average milk production for the last nine years.  With lower milk prices, lower milk production typically goes to no growth or negative growth vs. the prior year until the excesses are reduced and the cycle begins again. Lower milk production growth can be seen in Chart III for the early months of 2019, but production began climbing again in late 2019.

Chart III - Milk Production 12-MonthMoving Average

In the current cycle, the 12-month averages of milk production increases bottomed in August of 2019 while the milk supply was still growing at .26 percent.  In the two earlier cycles shown in Chart IV, the increase in milk production went to near zero. The producer milk price increased rapidly in late 2019 and the reduction in the growth of milk production did not hit the lows experienced in prior cycles.

Chart IV - Milk Production 12-Month Moving Average - Percent Change from Prior Year

With the 12-month moving average milk production increasing at only .34 percent (Chart IV), at the end fo 2019, cheese inventories were continuing to fall.  As of the end of November 2019 (the most recent data available), there was a 35 days' supply of cheese in cold storage, down from 39 days in January 2019.  The Class III milk price and milk protein price are closely tied to the price of cheese which in-turn is tied to the cheese inventory.

Chart V - Days Inventory of Cheese

Cow numbers fell to a low of 9,315,000 in August 2019.  However, with higher milk prices in the fourth quarter of 2019, the decrease in the number of cows has reversed, reaching 9,339,000 at the end of the year.

Chart VI - Dairy Cow Numbers

Chart VII shows the growth of cows vs. the prior year.  At the end of 2019, the cows numbers were still below the prior year numbers, but the decrease was much smaller than earlier in 2019.

Chart VII - Diary Cow Numbers - Percent Change from Prior Year

IS THE DECREASE OF GROWTH IN MILK PRODUCTION ENOUGH?

As shown in Chart IV, the 12-month moving average of milk growth slowed to about .26 percent in August 2019.  The fourth quarter of 2019 averaged .33 percent growth.  The current growth level of production would reduce cheese inventories if continued.  However, cow and milk numbers started growing in the fourth quarter of 2019 with the current higher milk prices.  As long as the growth number do not accelerate in 2020, the year should see inventories and milk prices at reasonable levels.