Expanding Milk Production Likely To Limit Price Increases

April 22, 2010 07:00 PM

Source: USDA's Economic Research Service

Although the nation's dairy herd continues to contract on a year-over-year basis, milk per cow continues to rise incrementally, USDA's Economic Research Service (ERS) said in its Livestock, Dairy, and Poultry Outlook released Wednesday.

USDA's April Milk Production report indicated that milk per cow was 51 lb. higher in March compared with a year ago.

Moderating feed prices for 2009-10 and the prospect of continued moderate feed prices into the next crop year have provided an incentive to increase output. However, lower milk prices have kept the milk-feed profitability ratio below 2.5. A milk-feed price ratio above 2.5 is considered necessary to begin any expansion, ERS said.

Although the U.S. dairy herd continues to decrease, the rate of decline appears to be moderating. The March Livestock Slaughter report showed 223,000 dairy cows slaughtered under federal inspection in February, the second lowest total since last May. Meanwhile, producers added 3,000 cows in both January and February.

For 2010, the U.S. dairy herd is expected to average 9,065,000 cows, down 1.5% from 2009, but somewhat higher than recent USDA estimates.

Output per cow is projected at 20,950 lb., resulting in a forecast 189.9 billion pounds of milk in 2010.

While exports have been modest in the first quarter, movement is likely to improve in later quarters due to economic recovery in importing countries and tighter supplies from potential competitors, Wednesday's report said.

Higher forecast milk production and relatively high cheese stocks suggest a scale-back in prices. Cheese prices could strengthen in the second half, if recovery continues and stocks are drawn down.

As growing milk production encounters expected increases in demand, prices are likely to be higher than 2009 but not rise to 2007 or 2008 levels. The Class IV price is forecast at $13.40/cwt. to $14.00/cwt. in 2010. The Class III price is expected to average $14.10/cwt. to $14.60/cwt The all milk price is forecast to average $15.45/cwt. to $15.95/cwt.

Read the full report online.

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