Some called it a September surprise. Others called it fodder for the bears. The USDA’s latest Milk Production report showed preliminary output at 17.6 billion pounds, up 1.3 percent from September 2018. Output in the top 24 states totaled 16.8 billion, up 1.6 percent. Revisions added 10 million pounds to the original 50 state August total, now put at 18.29 billion pounds, up 0.2 percent from August 2018. Revisions added 32 million pounds to the top 24 states output.

Cow numbers continued to slip. The head count in the 50 states totaled 9.315 million, down 2,000 from August, which was revised lower by 1,000 cows, and 53,000 head below a year ago. Output per cow averaged 1,891 pounds, down 72 pounds from August but 34 pounds above a year ago.

The overall increase came on milk-per-cow gains, even when forage quality and quantity are questionable, says the University of Wisconsin’s Dr. Robert Cropp and Dr. Mark Stephenson in their monthly podcast. The two remain optimistic on milk prices and don’t see a major downfall in the near term, assuming there is not a collapse in cheese demand.

HighGround Dairy (HGD) says “It is unlikely that U.S. milk output will see declines in the near term” and warned that “Production expansion has returned for good and will become the new normal yet again, ending the declines seen in three different months earlier this year and contributing to a return to global milk production expansion.”

Matt Gould, analyst and editor of the Dairy and Food Market Analyst newsletter, said the Milk Production report “represents the fastest growth rate in milk supply in about a year,” in the Oct. 28 “Dairy Radio Now” broadcast.

He warned that milk output is also growing in Europe “So we’re exiting a period where milk production was negative worldwide and entering, or maybe we’re already in, a period where milk production is positive.” That will put downward pressure on prices, though we are entering “the demand season of year,” but “Volatility is probably the one thing you can predict will continue.”

He doesn’t see a freefall in prices and says, “Next year’s lows are probably going to be the highest lows that we have seen in several years.” He also said it’s possible that prices may be even higher. “The big difference is, we started this year with a mountain of milk powder in European inventories and now it’s all gone. We don’t have buffer stocks to insulate markets from volatility.”

Demand will also continue to play a big role. U.S. cheese at retail has been growing 2-3 percent, he concluded, “and we’re still growing per capita consumption.”

FC Stoned stated in its Oct. 24 Early Morning Update; “In a broader view, a generally tighter milk production situation coupled with Class IV prices running above Class III early in the year (and, to some extent, California moving into the Federal Order) has tightened the availability of fresh Cheddar (to say nothing of several production hiccups we’ve heard about in the past few months). This has partly led some users to whittle down, rather than building inventories for the holidays as they had last year.”

Dairy farmers culled fewer cows in September than they did in August but more than a year ago. The Agriculture Department’s latest Livestock Slaughter report shows an estimated 255,700 head were slaughtered under federal inspection, down 10,900 from August but 8,300 or 3.4 percent above a year ago. The nine month cull count totaled 2.417 million head, up 81,100 head or 3.5 percent from a year ago.

Traders appeared to ignore the bearish reports and took the Cheddar blocks to a Friday close at $2.1225 per pound, up 15 1/2-cents on the week and 60 3/4-cents above a year ago. The barrels caught fire this week and closed at $2.25, up 25 cents on the week, highest barrel price since September 26, 2014, and $1 above a year ago, and with an inverted spread of 12 3/4-cents. 21 cars of block traded hands on the week at the CME and only 9 of barrel.

Midwest cheesemakers continue to report a lack of spot milk, says Dairy Market News, but keep a close eye on how much to take on due to production capacity and potential resale concerns. Demand reports continue to be steady but slower than a few weeks ago and inventories in the region are “mostly in balance.”

Analysts tell DMN they expect a slightly bearish 2020 butter market as higher imports and stocks put a bearish slant on the overall tone. Still, butter is expected to remain in its range-bound status.

The forecast for the 2020 milking herd was unchanged from last month at 9.34 million head. Milk yield per cow was forecast at 23,725 pounds, an increase of 35 pounds from the last forecast, as more rapid yield growth in late 2019 should carry over into 2020. Due to the higher milk per cow forecast, the 2020 production forecast was raised 400 million pounds to 221.6 billion pounds.

U.S. dairy products continue to leave the country via the Cooperatives Working Together program (CWT). Member cooperatives accepted five offers of export assistance this week to facilitate sales of 965,625 pounds of Cheddar cheese and 180,779 pounds of cream cheese. The product is going to customers in Asia and the Middle East from November through March 2020.

Dairy Management Incorporated board members were in Mexico this week getting a first-hand look at dairy checkoff programs going on there, sponsored by the US Dairy export Council (USDEC).

USDEC points out that Mexico is the number one export market for the United States, accounting for one-quarter of U.S. dairy exports and that nearly 90 percent of Mexico's dairy imports come from the U.S. Those sales amounted to $1.4 billion in 2018, says USDEC, and have increased for nine consecutive years. Exports to Southeast Asia were second, totaling about half those to Mexico, followed by Canada, China, South Korea, South America, and Japan.

In other global news, HighGround Dairy reports that “"EU milk production showed the strongest year over year growth since April, supported by higher production from the top five milk producing countries on the continent and especially good output from both Ireland and Poland.