Milk prices remain low and slaughter volumes high, according to USDA. Sellouts are more frequent than a year ago, and the dairy herd has likely contracted further, the agency says.

USDA revised its estimate of the October and November milk cow herds downward, and reported an additional 3,000-head decline from November to December. At 9.35 million head, the milk cow herd in December was the smallest since November 2016 and 49,000 head smaller than in December 2017.

Meanwhile, harsh winter weather battered dairy producers and dairy cattle in January and February. Bouts of bitter cold and heavy snows have not helped matters in the Midwest and Northeast. Heavy rains could slow gains in California.

USDA finally released the Cold Storage report, delayed several weeks by the government shutdown. It shows dairy product inventories on Dec. 31 declined, but cheese inventories rose. USDA reported year-end cheese stocks at 1.34 billion pounds, up 5% from a year ago.

But USDA revised its estimate of cheese inventories at the end of November, with a 4.6 million-pound decline in stocks from November to December, when inventories typically increase. Rock-bottom cheese prices in late December and early January didn’t suggest inventories were tightening. The markets have rebounded since and may have already accounted for the shift.

Butter figures offered a surprise of a different sort. Inventories on Dec. 31 reached 179.3 million pounds, up 6.2% from a year ago and the highest year-end stocks figure since 1993. Butter stocks swelled 25.6 million pounds through the month, just shy of the largest November-to-December increase on record. Over the past five years, butter inventories have grown just 4.9 million pounds in the typical December.

Growth in U.S. milk output plodded along in December. In the months since, it has likely slowed to a crawl.

Less milk, higher prices
In its monthly supply-demand estimates, USDA lowered its milk production forecast for 2019 while raising its dairy product price forecast, except for cheese.

The milk production forecast dropped by 500 million pounds to a record 220.1 billion, on lower expected first-half dairy cow numbers and continued slow growth in milk per cow. The cheese price forecast is lowered to $1.48 to $1.55 per pound after averaging just under $1.54 in 2018, $1.63 in 2017 and $1.60 in 2016.

USDA raised butter and nonfat dry milk and dry whey price forecasts. For this year, it expects butter prices to average from $2.23 to $2.33 per pound, compared to just under $2.26 in 2018. Nonfat dry milk prices are expected to average from 95.5 cents to $1.01 per pound, compared to 79 cents in 2018. Dry whey prices are expected to be between 43.5 and 46.5 cents per pound. Last year, dry whey averaged 34 cents.

USDA’s Class III price forecast for 2019 is $14.70 to $15.40 per cwt, compared to $14.61 last year. The 2019 all-milk price forecast is raised to $16.90 to $17.60 per cwt after averaging $16.20 in 2018.