Milk Expansion Continues

March 29, 2000

As the year progresses, sharply lower returns to milk producers should slow expansion in milk production, says USDA. But relatively high milk prices from preceding years, inexpensive concentrate feed prices and plenty of alfalfa supplies "have unleashed a major expansion in milk production." Any quick moderation of production is not likely.

The expansion of cow numbers has been rapid, particularly in the West, says the report. Easing of tight alfalfa supplies and more available replacement heifers probably helped the increase in the West and other regions of the country. Expansions already underway likely will not be affected much by the current low returns, and the number of new or expanding operations probably will not slow significantly until next year. Milk cow numbers should start to decline but remain above year-earlier levels, at least until mid-year.

Relatively strong growth in dairy product demand should continue this year, but it may not match the boom of 1998-99, says USDA. Economic activity and consumer incomes should increase but possibly not quite match last year. "Some of the exuberance in food spending may be missing, particularly for dairy products. A part of the strength in 1998-99 demand probably was just making up for the somewhat sluggish 1996-97 reaction to economic expansion."

Wholesale prices for cheese and butter may increase soon after any significant easing in milk production expansion. However, milk production probably will be great enough to forestall a major price recovery at least through the end of 2000. "If increases in output stay as large as recently, prices might stay near recent levels until autumn," says the report.

Prices for milk for manufacturing should stay low during the first half of this year. The average milk price received by farmers this year should decline about $2 per cwt. from the $14.38 posted average in 1999. Prices at the end of the year should be considerably stronger than now but still relatively weak.

For the entire Livestock, Dairy and Poultry Situation and Outlook report on the Internet, go to http://www.ers.usda.gov/Prodsrvs/rept-ldp.htm and click on Livestock, Dairy and Poultry Situation and Outlook Report.