Weather in the United States has been unusually warm since the beginning of 2012. A mild winter was followed by a warm spring and an extremely hot and dry summer. The temperature was 4.5˚F above average (2.5˚C) for the January to July period.

The drought is widespread and in many regions severe. Rainfall ceased almost completely in early June in numerous regions, and it has been very hot and dry since. The temperature in the Midwest was above 100˚F (37.8˚C) for 15 straight days from early July: it normally only pierces that level a few days a year. Sixty-four percent of the US is now in mild or severe drought, making this the most widespread drought since 1956. Forty-six percent of the US is in severe drought. The near-term weather outlook (two weeks from 27 July) suggests only modest relief.

While widespread, not all regions are experiencing drought, and the severity of conditions varies by region. The region worst hit is the corn and soybean cropping belt in the Midwest. Of the dairy regions, the Midwest and Southwest are the worst impacted. However, some important dairy states (including Washington, Idaho and parts of the Northeast) have so far escaped the heat. And while California has been hot and dry, as usual at this time of year, ample supply of irrigation water has limited direct impacts on dairy producers to date.

Drought hit as US milk supply growth was already losing momentum

The wave of growth in US milk supply seen in early 2012 was already losing momentum before the drought hit, driven by several factors. Falling milk prices and high feed costs had pushed most producers who were not hedged or vertically integrated into the red by February. Early in Q2, some processors in California had imposed quotas, in an effort to curtail the surge in milk supply in the face of capacity constraints. And the mild winter (a positive for yields) was followed by a warm spring (less positive).

These factors combined to impact both cow numbers and yields. Quotas and cashflow constraints encouraged culling in some regions. Deteriorating margins encouraged a switch to lower quality feeds, and together with less positive climatic conditions than evident in Q1, brought a significant decline in yield growth.

As a result, US milk production growth slowed from a vigorous 4.5 percent YOY in February (leap year adjusted) to a modest 0.9 percent in June. The slowdown was particularly marked in California. After growing 6.5 percent plus in the opening three months of the year (leap year adjusted), Californian milk production was basically flat on year-ago levels in June.

Even before the drought had developed, most forecasters, including Rabobank, had already been factoring in a further slowing of US production growth in 2H based on lower cow numbers and slowing yield growth in response to negative operational returns, high cull prices and a cash flow squeeze.