Are USDA's 2016 Forecasts for All-Milk-Price, Production Realistic?

May 12, 2015 04:45 PM
Are USDA's 2016 Forecasts for All-Milk-Price, Production Realistic?

The WASDE report bumps up 2016’s All-Milk price, projects sharply higher milk production.

If USDA is right, the average All-Milk price will reach $17.35 per cwt. this year and $17.95 per cwt. in 2016.

At least one dairy market analyst agrees those numbers are realistic.

“I think we’ll see more demand edge back into the system, so we’re in agreement there,” says Sara Dorland, managing partner with the commodity advisory firm Ceres

It’s the 2016 milk production number that has Dorland puzzled.

In today’s World Agricultural Supply and Demand Estimates (WASDE) report, USDA lowered this year’s U.S. milk production outlook to 208.6 billion pounds, a decrease of 1.4 billion pounds from its April estimate.  The report attributed the drop to drought in the West that’s impacting milk per cow and to slower-than-expected growth in the nation’s dairy cow herd.

That cutback is appropriate, says Dorland, given the toll that drought is taking in states like California and New Mexico. “I also expect cow numbers to decline on [reduced] feed quality and stress on the animals,” she adds.

While the latest production forecast signals record-high U.S. output, it’s nowhere near as elevated as USDA’s 2016 production outlook. The WASDE report predicts a whopping 213.6 billion pounds of milk will come from U.S. dairies next year.

“That’s a pretty aggressive increase,” Dorland says. “Although that 2.4% growth rate is historically normal, there are a lot of assumptions there.”

To Dorland, the 2016 jump in output assumes things will stabilize and improve in California – the nation’s No. 1 milk-producing state -- but that’s not expected by climate experts she has spoken with. It also presumes that the over-supplied milk plants in the Mideast section -- Michigan, Indiana and Ohio -- and New York and Pennsylvania will be able to handle and process the area’s heavy milk flow.

“The Midwest has a good amount of processing capacity but it’s pulling a lot of milk out of the Mideast,” she says.

USDA expects improved forage availability and moderate feed costs will support gains in milk per cow next year. It also forecasts slightly higher cow numbers.

Elsewhere in the report, Dorland is in sync with WASDE export numbers. Those show improved shipments of U.S. dairy products to foreign countries as trade patterns resume their normal pace.  This year, exports are expected to reach 10.8 billion pounds and, in 2016, 11.5 billion pounds. Both years’ projections fall below 2014’s level of 12.5 billion pounds.

For 2015, USDA lowered its forecast for cheese, nonfat dry milk and whey from last month’s estimate but raised butter prices on higher demand. Butter prices are forecast to fall next year “as strong NDM demand is expected to support relatively high levels of butter production,” USDA says.

USDA continues to predict this year’s Class III prices in the range of $16.05-$16.55 per cwt. It pegs 2015 Class IV prices between $14.35 and $14.95 per cwt.

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