Unfavorable weather did depress milk per cow in both New Mexico and Texas, down respectively 4.4% and 8.3%. But
7.8% more cows in New Mexico still resulted in 2.9% more production, while 0.2% fewer cows in Texas reduced
production 8.7%. Despite the severe drought in the Northeast, milk production is still higher than a year ago, and although slowing, production is likely to stay at or above year ago levels. Dairy farmers will cull the herd more closely and feed quality feed. August, compared to a year ago, shows New York production up 3.0% from 0.1% more cows and 2.8% more per cow. Production was unchanged in Pennsylvania with 1.3% fewer milk cows offsetting a similar increase in milk per cow. While milk production is still short of fluid needs in the Southeast, the deficit is declining and less milk is being imported. Florida actually experienced 5.5% more milk than a year ago.

Accumulated milk production from January through August was 3.1% more than for the same period a year ago. This is a lot of milk. Latest commercial disappearance numbers, January through June, indicate that milk and dairy product sales are not as strong as last year. All milk sales were up just 1.3% with sales of individual products being up 0.5% for butter, only 1.8% for American cheese, 3.7% for other cheese varieties, and 0.8% for fluid milk, but down 11.0% for nonfat dry milk. The troubling part of these sales numbers is cheese sales, the product that drives farm level milk prices. For the month of July, compared to a year ago, American cheese sales were actually down 5.2% and other cheese sales up only 1.2%. But the increase in milk production has meant more production of manufactured dairy
products. Compared to last year, July American cheese production was up 8.2% and all cheese up 5.8%. Accumulated production from January through July, was 6.7% higher for American cheese and 4.9% for total cheese. More milk and declining cheese prices has put more milk into butter and milk powder production. Butter production was up 22.8% for July and 9.1% year to date. July nonfat dry milk production was up 18.5% and year to date up 16.7%.

More milk, more production of manufactured dairy products along with slower sales means a build up in stocks. July 31st stock data show total cheese stocks at 762.5 million pounds, 28% more than a year ago, and butter stocks at 118.9 million pounds, up 133% from a year ago. While NASS correction of under estimated June 30th cheese stocks immediately brought down cheese prices on the CME, the cheese production and sales data explain why cheese prices continue to fall. Milk production will continue strong this fall and on into next year. Cheese and butter supplies will not be tight. Therefore, wholesalers do not need to accumulate inventories to protect their sales commitments and can buy more as they need product. On the CME cash market, 40 pound cheddar blocks were at their peak on August 21st at $1.9725 per pound. As of September 15th, 40 pound blocks at fallen $0.3025 to $1.67 per pound. Cheddar barrels were at their peak of $1.8850 per pound on August 19th and since then have declined $0.39 to $1.495 per pound. The wide spread of $0.175 per pound between blocks and barrels is putting pressure on barrel manufactures in being able to compete with block manufacturers for milk. Hence, block production will increase relative to barrels and block prices will fall further until the spread narrows to $0.03 to $0.04 per pound.