The handwriting is on the milk house wall. U.S. milk output is slowing due to falling cow numbers and output per cow, driven by tightening farm margins and dairies exiting the business. The USDA’s latest preliminary data shows September output at 18.1 billion pounds, down 664 million pounds or 3.5 percent from August, but just 44 million pounds or 0.2 percent above September 2020. 

The 24-State total, at 17.3 billion pounds, was up 0.4 percent from a year ago. Revisions lowered the August 50-State estimate by 101 million pounds from last month’s report, to 18.7 billion, up 0.6 percent from 2020, instead of the 1.1 percent reported.

September cow numbers totaled 9.42 million head, down 25,000 from August, after dropping 19,000 from July (27,000 from New Mexico alone), fourth month in a row cow numbers fell from the previous month. The milking herd is still 27,000 head above a year ago. August numbers were revised down 33,000 head. The big story here is the herd dropping 85,000 head from its peak four months ago.

September output per cow averaged 1,918 pounds, down 1 pound from 2020, a repeat of last month, and very unusual for output per cow not to increase.

California milk output was only up 0.2 percent, on a 5-pound gain per cow, while cow numbers were unchanged. Wisconsin was up 83 million pounds or 3.3 percent, on a 30-pound gain per cow and 22,000 more cows. Idaho was down 0.2 percent, on a 25-pound drop per cow, though cow numbers were up 6,000 head. Michigan was up 1.8 percent on 12,000 more cows, offsetting a 20-pound drop per cow.

The report fed the bulls and Class III futures shot higher in response.

Meanwhile, dairy cow culling may be slowing some though it remained above a year ago for the fourth consecutive month, according to USDA’s latest Livestock Slaughter report.

The data shows an estimated 264,600 head were sent to slaughter under federal inspection in September, up 3,200 from August and 14,200 or 5.7 percent above Sept. 2020. Culling in the nine-month period totaled 2.34 million head, up 35,500 or 1.5 percent from a year ago.

In the week ending Oct. 9, 59,400 dairy cows were sent to slaughter, down 1,300 from the previous week, but 2,200 or 3.8 percent above that week a year ago. 

The Oct. 18 Livestock, Dairy, and Poultry Outlook reported that climatic conditions and high costs of production have likely contributed to the lower cow numbers. The U.S. drought monitor shows the inventory of milk cows in areas of drought was estimated to be 63 percent for the weeks of June 15 and June 22. The percentage in drought areas has declined since then to 40 percent for the week of Oct. 5. More than 60 percent of alfalfa hay areas have been in drought since the middle of June. The National Oceanic and Atmospheric Administration said the summer of 2021 was the hottest on record for the 48 contiguous states.

Labor and fuel costs have also been relatively high, according to the Outlook. The semi-annual Farm Labor report said USDA’s National Agricultural Service reported that the average hourly rate for hired farm workers for the reference week in April 2021 was up 6 percent from the April 2020 reference week.

Dairy margins did continue to strengthen the first half of October from a combination of surging milk prices and steady to weaker projected feed costs, according to the latest Margin Watch (MW) from Chicago-based Commodity & Ingredient Hedging LLC. The MW credited strong demand for dairy products for helping to support milk prices as milk output moderates due to soaring feed costs.

“August U.S. dairy exports exceeded 510 million pounds, posting a 13 percent increase from 2020,” the MW stated. “Year-to-date dairy exports through August are up 12 percent from 2020, with nonfat dry milk, cheese, and butter experiencing year-over-year gains in both volume and value from the same period last year.

“Recovering economies across the globe and competitive prices relative to other major dairy exporters have helped support U.S. dairy exports, and this demand should continue to help support dairy product prices as milk production slows.

“USDA’s October WASDE report raised projections for corn and soybean yield, production, and ending stocks, according to the MW, however, high feed costs earlier this summer has clearly had an impact on milk production.

“USDA raised the corn yield projection slightly to 176.5 bushels per acre with production estimated at 15.019 billion bushels and ending stocks pegged at 1.50 billion. The soybean forecast was raised to 51.5 bushels per acre with production estimated at 4.45 billion bushels and ending stocks pegged at 320 million.”

The U.S. corn harvest was 52 percent complete, as of the week ending Oct. 17, according to this week’s Crop Progress report. That’s 5 percent behind a year ago but 11 percent ahead of the five-year average. Sixty percent of the corn crop was rated good to excellent, 1 percent behind a year ago. The soybean harvest is 60 percent complete, 13 percent behind a year ago, but 5 percent ahead of the five-year average.

As for China’s dairy imports, whole milk powder imports hit a record 79.2 million pounds, up 56.3 percent from September 2020, with year-to-date imports up 42.5 percent. Skim milk powder totaled 67.3 million pounds, down 13.8  percent, though YTD imports are up 34.3 percent.

HighGround Dairy’s Lucas Fuess reported in the Oct. 25 Dairy Radio Now broadcast that the reason those imports were down was mostly due to a shortage of product from New Zealand, however competitive prices enabled the United States to be the number one supplier in the month.

Cheese imports amounted to 21.4 million pounds, up 9.8 percent from a year ago and up 42 percent YTD. 1.2 million pounds came from U.S. vats. China imported 9.4 million pounds of butter, up 10.8 percent from a year ago, with YTD up 21.9 percent.

Cheesemakers tell Dairy Market News that spot milk is not tight but not as open as previous weeks. Cheese demand notes, from both process and other style cheesemakers, are in a seasonal push. Plant employee shortages have contacts concerned about schedules and overworking veteran employees, wage increases and other logistical concerns.

Western retail and food service cheese demand is steady to higher. Holiday demand is picking up and export interests are steady. Some cheesemakers are operating at maximum capacity, but others report limitations due to persistent staffing issues. Congestion at ports and trucking issues continue.

Dairy remains a big part of the American diet. August numbers are encouraging, starting with butter. August consumption totaled 189.1 million pounds, up 18.7 percent from August 2020, with year-to-date disappearance up 5.7 percent. HighGround Dairy said butter saw the strongest year over year gain since February and the highest August on record.

The November Class I base milk price was announced by USDA at $17.98 per hundredweight, up 90 cents from October, 6 cents below November 2020, and equates to $1.55 per gallon, same as a year ago. The 10-month Class I average stands at $16.57, up from $16.50 a year ago and compares to $16.64 in 2019.