Milk Production Outpacing Demand

July 24, 2002

Milk production continues to outpace dairy product demand, resulting in a significant increase in U.S. stocks. The dairy industry entered 2002 in a milk surplus situation, with production growing faster than demand. In January through June 2002, milk production continued to surpass 2001 figures, according to the International Dairy Foods Association.

Commercial stocks of dairy products were built up through this spring -- and in some cases, stocks have far exceeded levels seen in recent years for this time of year. Retail sales have not been strong enough to absorb current production, much less reduce stocks and tighten the overall dairy supply-demand situation.

In every month of 2002 so far, milk production surpassed last year's volume. Through June, production estimates for the total United States are up 2.7% over 2001. Much of this production growth occurred in the West. New Mexico's milk output is up 15.7% from January to June 2001. Arizona (up 7.3%), Idaho (6.2%) and California (5.1%) also have shown impressive growth in the first half of this year over last.

The IDFA report says it is "notable" that Arizona's production increase came with adding less than 0.5% to the state's herd. By comparison, New Mexico added 12.4% more cows, California 3.7%, and Idaho 6.4%. In other words, the production increases in those states resulted from more cows being milked there. In addition to Arizona, other states expanded output without significantly increasing herd size. Ohio raised production 5.5%, yet declined 0.3% in cow numbers, while New York added just 1.1% more cows and saw a 5.7% growth in total production.

Demand for all dairy products, at retail and wholesale, has not kept pace with this production growth. Since milk production began increasing in the fourth quarter of 2001, much of that milk has gone into building stocks of dairy products. By the beginning of this May, commercial stocks of dairy products were, in terms of milk equivalent-milkfat basis, 1.6 billion pounds ahead of 2001 stocks, despite greater retail sales of both fluid milk (up 0.2% through May) and cheese (up 0.7% through May 19).