High Feed Prices Likely To Limit 2011 Dairy Expansion

03:47PM Nov 19, 2010
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Source: USDA’s Economic Research Service 

The upward movement in feed prices will pressure producer margins and will likely curtail the modest recovery in cow numbers that began early this year, USDA’s Economic Research Service (ERS) said today in its "Livestock, Dairy and Poultry Outlook."
Improving domestic demand and strong export prospects, especially for nonfat dry milk, should keep the all-milk price in 2011 very near this year’s expected average, ERS said. The all-milk price is forecast to average $15.95 to $16.85/cwt. next year, very near the expected 2010 average of $16.30 to $16.40/cwt.
Imports are forecast lower next year. Exports on a fats basis are expected to decline next year, while exports on a skim-solids basis will remain strong.
Current USDA forecasts call for substantially higher corn prices in 2010/11 compared with last year. Prices are projected at $4.80 to $5.60/bu., an increase from last month’s forecast and up sharply from last year’s $3.55/bu. average. Soybean meal prices are forecast at $310 to $350/ton this year, a small rise from last year’s $311/ton average.
Higher 2011 feed ingredient prices will boost the benchmark 16-% protein mixed dairy ration by double digits after two years of declines.
For 2011, cow numbers are forecast at 9.130 million head, up slightly from 9.115 million expected this year. Milk output per cow is projected to rise by better than 2.8% in 2010. The expected rise this year can be attributed to relatively moderate feed prices and overall good weather.
Next year, the forecast for higher feed prices will likely bring down the expected increase to about 1.3%, close to trend. Despite the higher feed price forecast, milk production is forecast to climb to 195.6 billion pounds in 2011, a rise of more than 1.4% over this year’s projected 192.8 billion-pound production.
Milk equivalent exports on a fats basis have shown strength this year. Cheese exports have been robust this year; however, continued growth may be limited by tariffs on exports to Mexico. Total exports on a fats basis are expected to total 7.7 billion pounds this year and decline to 6.2 billion pounds in 2011. Exports on a skim-solids basis are forecast to total 29.8 billion pounds this year and continue strong in 2011, reaching 29.5 billion pounds by year-end. Global economic recovery and a weaker dollar should help support nonfat dry milk (NDM) exports.
The modest domestic economic recovery and a weaker dollar relative to foreign currencies will result in lower imports this year compared with last and will likely keep imports below year-earlier levels into 2011. Fats basis imports will likely total 4.6 billion pounds in 2010 and slip to 4.1 billion pounds next year. On a skimsolids basis, import totals are expected to be near 5.1 billion pounds this year, declining to 4.9 billion pounds in 2011.
Cheese prices have increased over the course of 2010 and are expected to average $1.515 to $1.525/lb. for the year. Cheese prices have fallen of late, but continued economic recovery, combined with slower growth in milk production, will firm cheese prices over the course of 2011. Next year, cheese prices are expected to average $1.530 to $1.620/lb.
Butter prices appear to have retreated from their peaks earlier in 2010 but will average $1.710 to $1.740/lb. for the year. In 2011, slightly higher milk production could lower butter prices even further. However, butter prices will remain high compared with recent years and are forecast to average $1.500 to $1.620/lb. Export prospects for NDM will likely strengthen prices in 2011 to $1.185 to $1.255/lb.; up from this year’s expected $1.155 to $1.175/lb. average. Whey prices are expected to remain virtually unchanged, averaging 36.5 to 37.5 cents/lb. this year and 35.5 to 38.5 cents/lb. next year.
Stronger NDM prices should partly offset lower butter prices, keeping Class IV prices firm over the course of 2011. Class IV prices, which are expected to average $14.45 to $15.45/cwt. in 2011, will be only slightly lower than the expected $15.05 to $15.25/cwt. average in 2010. Stronger domestic demand for cheese will boost the Class III price next year. In 2011, the Class III price is expected to average $14.40 to $15.30/cwt., up from an average $14.35 to $14.45 this year.