By CAROL RYAN DUMAS

Capital Press

Dairy analysts say the latest USDA production report shows U.S. milk supplies are growing, which could lead to lower prices for dairymen.

Not only was January's milk production up 3.7 percent from January 2011, but there were 93,000 more cows in the herd. Milk per cow also increased 46 pounds from January 2011, a 3.4 percent increase and one of the largest monthly increases on record.

U.S. fluid milk sales, on the other hand, continue to decline 3 percent per month, said John Kaczor, publisher of California Milk Producers Council's weekly newsletter.

The combination of a growing supply and weaker fluid milk consumption will likely be taken as a negative sign for future milk prices, he said.

If the dairy industry continues on this path, it will result in substantial production increases and sharply lower prices, he said.

The increase in production is hard to understand, given feed prices, he said.

"Anyone who has to purchase the majority of their feed knows these costs are not going down," he said.

That's the case in California, yet the state posted one of the largest production increases in January, he said.

"Co-ops and plants should reactivate their bases to clamp down on increases," he said.

Dairy exports have helped balance the milk supply the last couple of years, but increased production in other parts of the world could cause problems for U.S. exports, he said.

Milk production in Argentina was up about 10 percent in 2011, up 9.5 to 10 percent in New Zealand, and up 4 percent in Australia, he said.

"Somehow, we have to keep current exports at that level, which is problematic," he said.

Inventories of most major dairy commodities were growing or showing signs of growth at the end of last year. With milk production increasing every month since August, and a lot of product to sell, it's unlikely milk prices will be enough to cover cost of production, he said.

The industry needs to immediately apply self control. Either that or hope for a major natural catastrophe, he said.

Another problem in the making is the spring flush that will begin this month in the South and work its way north. That's only going to add to the milk supply that's already been boosted by mild weather, Jerry Dryer said in his Dairy & Food Market Analysts weekly report.

"There is absolutely too much milk, absolutely everywhere," he said.

There are also a larger-than-usual number of pregnant cows in the herd that will soon begin contributing to the surplus, he said.

Red ink has been flowing in milk and dairy products markets, and prices continue to march lower, he said.

At the end of last year, Class III futures prices averaged $17.31 per hundredweight for the first half of 2012. On Tuesday, that average was $15.70.

"We could set some new monthly contract lows before it's all over," he said.

January milk production

Million pounds

Area 2011 2012 %change

Calif. 3,390 3,615 6.6

Idaho 1,066 1,116 4.7

Ore. 202 204 2.5

Wash. 498 525 5.4

U.S.* 15,219 15,782 3.7

* 23 major milk-production states

January milk cows

1,000 head

Area 2011 2012

Calif. 1,752 1,781

Idaho 573 581

Ore. 120 123

Wash. 252 263

U.S.* 8,405 8,498

* 23 major milk-production states

Source: USDA/NASS