Rabobank Report: Milk production marks eighth consecutive decline in February; low cheese prices prevent farmer margin recovery


Source: Rabobank

• February milk production dropped 1.3% on a leap-year-adjusted basis, marking the
eighth consecutive month of weaker year-over-year output. January volume was revised
lower, down 1.2% versus the initially reported 1.1% decline. Fewer cows and poor yield again translated into lower production; there remain limited signs of a near-term recovery in milk output as farm-level profitability remains elusive. To date, the HPAI spread throughout a small number of herds has not had a negative impact on milk output.
• The herd grew by 10,000 head in February following the steep 28,000 head January decline. Cow numbers remain near 2019’s low and are down 89,000 head YOY. The February increase was slightly misleading and almost solely driven by Texas, up 10,000 head in the month.
• Milk per cow was down a leap-year adjusted 0.4%, following January’s 0.3% drop. Yield has been lower YOY in six of the past eight months, showing abnormal weakness opposite the long-term average of 1% YOY growth.
• Total February cheese production fell 0.6% on a leap-year-adjusted basis, the third YOY decline. Output was down 0.8% in both the Central and Western regions, but up 1.4% in the Atlantic region. The weakness was driven by less American-style volume, a trend consistent with January cheese production as well, with output down 4.7% on a leap-year-adjusted basis. Cheddar output caused the lower American production in February, with volume down 7.2% YOY. Opposite the American-style decline, total Italian-style production increased 0.8% YOY, despite a 0.3% mozzarella output drop.
• Butter production grew 1.9% YOY in the third monthly increase. Even when adjusted to a daily average basis to account for Leap Day, it marked the largest February butter output on record. Strong volume and climbing stocks lean bearish, but regardless, the butter price has maintained its strength in recent weeks as concerns about availability later in the year remain.

• Combined nonfat dry milk/skim milk powder production was down 19.3% YOY on a leap-
year-adjusted basis and signified the ninth consecutive month of lower output. Stocks decreased by 2.6m pounds in February to total 209.6m pounds but are down 106.2m pounds YOY.
• Exports improved in February to drive the first YOY gain since January 2023, helped by strength in cheese, nonfat dry milk, and whey powder. Cheese shipments impressed and achieved record-high monthly volumes when measured on a daily average basis. Competitive US cheese pricing in Q1 helped drive the higher export volume. In nonfat dry milk, February exports improved versus the prior year following a 14% decline in January, driven by Southeast Asian demand offsetting weakness to Mexico.
• The year-on-year dairy consumer price index signified the seventh straight decline in March as dairy product price deflation persists.