Milk prices above $20 signal brighter days and solid margins for dairy producers.
Dairy prices will remain unusually strong this year, even as U.S. milk production increases to historic highs, USDA forecast today in its monthly World Agricultural Supply and Demand Estimates (WASDE) report.
U.S. milk output is projected to climb to a record 206.1 billion pounds in 2014, up nearly 5 billion pounds from 201.2 billion pounds in 2013. Today’s production estimate also rose by 400 million pounds from last month’s WASDE forecast. The 2014 production outlook is a whopping 10 billion pounds higher than U.S. dairies produced in 2011, when 196.2 billion pounds was a record. U.S. milk production has increased for five consecutive years.
The increased milk production comes as strong returns are expected to encourage a more rapid expansion in cow numbers and increased milk per cow, USDA said.
Spurred by higher product prices, the All-Milk Price is expected to average $22.55-$23.05 per cwt. this year, the WASDE report noted. That’s the highest level ever for the average price.
"We’ve never seen dairy prices and milk production this high at the same time," says Robin Schmahl, commodity broker and owner of AgDairy LLC in Elkhart Lake, Wis. "For dairy producers, the futures looks brighter than it has for a long time."
Boosting the bullish price outlook is the strong global demand for U.S. dairy products. U.S. export volumes in February were the highest in six months, led by strong sales of cheese, whey proteins and butterfat, the U.S. Dairy Export Council reported this week. U.S. suppliers shipped 160,510 tons of milk powders, cheese, butterfat, whey and lactose in February, up 19% from last year. Total value of all exports was $585.2 million, up 37% from a year ago. On a daily-average basis, that’s the highest figure ever. As a result of the record run of U.S. dairy exports, overseas sales accounted for 15.5% of U.S. milk production in February.
"Exports are the big thing," Schmahl says. "They’ve exploded in the last two years. They’ve created another outlet for U.S. dairy products. Domestic demand has remained good as well."
USDA estimates that Class IV prices, which represent cheese, butter and powder sales, will reach all-time highs of $21.05-$21.65 per cwt. Class III, the benchmark price standard for dairy producers, will rise to $20.40-$20.90 per cwt. Class III represents fluid milk sales.
Schmahl cautions that high prices will spur additional production, particularly in the Upper Midwest, where this season’s cold weather and feed-quality issues have held back milk output. On the other hand, some dairies are having trouble getting cow replacements, which could prevent production from climbing as high as it might otherwise. "Expansions don’t happen overnight," Schmahl says.
He also notes that futures prices have slowed down in the past two weeks. Block cheese prices have dropped more than 21 cents per pound. Schmahl says manufacturers are moving higher-priced products to market while buyers are holding back on the weakness in cheese prices.
Read the WASDE report here.