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September 21, 2007

Short forage supply may be limiting gains on Indiana dairies

WEST LAFAYETTE, Ind. - High milk prices coupled with strong domestic and international demand should spark an increase in dairy production, but Indiana dairy producers may be hampered, said a Purdue University expert.

"Short forage supplies may be limiting production gains in Indiana despite modest improvement in production per cow compared to a very hot July 2006," said Mike Schutz, Purdue Extension dairy specialist.

"While milk production would seem ready to explode because of favorable milk prices and moderating feed costs, forage availability, especially in the Eastern Corn Belt and upper Midwest; evolving milk handler and retailer attitudes about the use of a bovine somatotropin in herds; and extreme summer heat over large portions of the United States will hold back the accelerating production to a degree," he said.

Bovine somatotropin, also known as BST, is a supplement used to increase milk production. Milk co-ops are asking their patrons to sign a pledge not to use BST in their dairy operation in hopes they will see a premium from retailers.

Milk prices hit record highs this summer and continue near those levels. The U.S. all-milk price reached a record high of $21.70 per hundredweight for July and August.

The U.S. supply of milk is expected to respond to the increased prices, and probably in a big way, Schutz said.

"Clearly, these prices won't last forever, as the milk supply responds to increased profits," he said. "But strong demand seems poised to prevent a dramatic drop in prices well into 2008."

Schutz said that many blame the current retail dairy prices on higher grain costs that farmers are facing because of increased ethanol production.

"This isn't the case, at least not yet," Schutz said.

"The real story behind high milk prices is global demand, especially for protein products like whey powder and non-fat dry milk," he said. "That, accompanied with the weakened U.S. dollar in international markets, has stacked up to move a lot of dairy products into international markets, especially Southeast Asia.

"It's demand for dairy products that is really driving higher prices."

In addition to strong global demand, U.S. demand for dairy products is strong.

"For most of the last two years, milk utilization and purchases of fluid milk have increased every month," Schutz said. "The first sign that demand for fluid milk may be shrinking was in the July report, and that's probably in response to the higher retail prices consumers are seeing."

Demand for fluid milk increased 1.4 percent in January through March, but the rate slowed to 0.2 percent for April, May and June. Still, Schutz remains optimistic. July 2007 U.S. milk production ran 3.9 percent higher than in July 2006. Indiana milk production was about 1.1 percent higher than in July 2006.

"The future for dairy prices looks very strong, especially through the rest of 2007," he said. "It's expected that prices will shrink back a little bit toward more normal prices in 2008, but prices will remain quite strong.

"What happens to milk production in the coming months will go a long way in influencing milk prices over the next year, but right now demand domestically remains strong despite high prices."

Writer: Julie Douglas, (765) 496-1050, douglajk@purdue.edu

Source: Mike Schutz, (765) 494-9478, mschutz@purdue.edu

Ag Communications: (765) 494-2722;
Beth Forbes, forbes@purdue.edu
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