By LEE MIELKE
Mielke Market Report 

The USDA’s preliminary data in its latest Milk Production report shows August output in the top 23 producing states at 16.18 billion pounds, up 2.6 percent from August 2013 and the eighth month in a row output was above a year ago. The 50-state total, at 17.22 billion pounds, was up 2.5 percent from a year ago. Revisions reduced July’s original 23-state estimate by 1 million pounds, now reported at 16.4 billion pounds, up 4 percent from a year ago.

August cow numbers in the 23 states, at 8.58 million head, were down 1,000 from July but 60,000 more head than a year ago. The 50-state count, at 9.28 million head, is down 1,000 from July but 47,000 more than a year ago.

August output per cow in the 23 states averaged 1,885 pounds, down 26 pounds from July but 35 pounds above August 2013, and it’s the highest production per cow for the month of August since the 23-state series began in 2003.

California was up 1.4 percent on a 30-pound gain per cow, although cow numbers were off 2,000 head. Wisconsin was up 1.2 percent, thanks to a 25-pound gain per cow, but cow numbers were down 2,000 as well. Idaho was up 3.1 percent, thanks to a 40-pound gain per cow and 6,000 more cows. New York was up 2.7 percent on a 35-pound gain per cow and 5,000 more cows. Pennsylvania inched 0.6 percent higher on a 20-pound gain per cow, but cow numbers were down 3,000 head. Minnesota was up 0.5 percent on a 25-pound gain per cow, but cow numbers were down 5,000 from a year ago.

Oregon was the only state showing a decrease. The biggest gain was in Florida, up 8.4 percent, and Colorado, up 8 percent. From there we go to Michigan, up 6.7 percent on a 65-pound gain per cow and 13,000 more cows. Texas was next, up 6.2 percent on 30,000 more cows, though output per cow was down 10 pounds. Two other states we watch: New Mexico was up 2.7 percent on a 35-pound gain per cow and 5,000 more cows. Washington State was up 2.4 percent, thanks to 20 pounds more per cow and 4,000 more cows than a year ago.

High Ground Dairy’s Eric Meyer points out in his analysis that, after a mild July and continued increases in milk, cows took production close to the 4 percent year-over-year growth mark. A more seasonally temperate August against a very mild month in 2013 only managed to achieve 2.5 per cent production growth this past month.

"While some may argue these results were bullish, we believe production was right in line with our expectations when looking at last year’s comparison and its anomaly against the rest of 2013. Unless the milking herd does not continue increasing (in this report, August declined versus July’s revised figure), we fully expect a return to the 3.5 to 4 per cent (or higher) growth trend through at least the remainder of 2014 and quote possibly into Q1 2015."

Meyer says he’s a bit concerned about the lack of monthly herd growth in August as USDA published 1,000-head declines in both the All-US and 23 selected state herd tallies from July. But we struggle to get to a monthly herd loss when looking at recent dairy cow slaughter data. During July 2014, dairy cow slaughter was 232,000 head, down 7.6 per cent from July 2013. And based on weekly dairy cow slaughter volumes published by USDA in August, the four-week total from Aug. 4 through Aug. 30, 216,500 dairy cows were culled – a decline of 9.7 per cent from August 2013.

We suspect that USDA will be busy revising August’s milking herd higher as they have over the past five months. To read more of Meyer’s analysis, write him at ericm@highgroundtrading.com

The high milk prices and low feed prices are keeping dairy cows in the milking string, according to USDA’s latest Livestock Slaughter report. An estimated 229,000 dairy cows were slaughtered under Federal inspection in August, down 3,000 head from July and 37,000 below August 2013.

Looking at the first eight months of 2014, USDA estimates that 1.85 million head were "retired" from the dairy business, 233,000 head less than the same period a year ago.

Meanwhile, Aug. 31 butter stocks stood at 165.1 million pounds, according to preliminary data in the USDA’s latest Cold Storage report issued Sept. 22, down 5.1 million pounds or 3 percent from July but 98.8 million pounds or 37 percent below August 2013.

American type cheese, at 662.4 million pounds, was up 2 million pounds, virtually unchanged from July, but 6 million pounds or 1 percent below a year ago. Total cheese stocks amounted to 1.05 billion pounds, virtually unchanged from July, but 45.7 million pounds or 4 percent below those of a year ago.

"The cheese industry feels like it is walking on glass," writes Matt Gould in his Sept. 19 Dairy and Food Market Analyst: "Everybody along the supply chain is nervous about prices. Participants are very afraid they will be left holding over-priced cheese when the market falls. All along the value chain, participants are reluctant to hold much inventory, but they need to keep ordering, refilling their pipeline. It’s a vicious circle."

"The market ended up tighter this week. Barrels are nearly impossible to find; blocks a little looser. To add further stress on the system, a barrel plant in Iowa just closed. It had been taking in 2 million pounds of milk per day. If CME spot volume is a sign of product availability, for the first time in two weeks we finally saw a load of barrel cheese trade.

What will it take to turn this market? Prices will fall when: (1) raw milk is offered at a substantial discount; cheap milk makes cheap cheese, (2) these high prices are finally passed through to the consumer and consumption decreases, and/or (3) imports arrive in the U.S.

If imports are the first to take effect, we expect to have at least another four to six weeks with these prices. When the market does fall, it will crash in a hurry as participants wait for a bottom before jumping back in. The rumor-mill now says the first load(s) of cheese has actually made it to port in the USA.