Increased Milk Production, Lower Exports Will Depress Dairy Prices in 2012

January 20, 2012 09:52 AM

The 2012 All-Milk price is forecast at $18.30 to $19.10 per cwt., USDA says.

Pressured by higher milk production and lower export prospects, dairy prices are expected to fall in 2012, USDA’s Economic Research Service (ERS) said Jan. 19 in its “Livestock, Dairy and Poultry Outlook.”
Despite a forecast of a small reduction in herd size from 2011, higher milk per cow will raise milk production in 2012, ERS said. Exports on both a fats and skims-solids basis are lowered for 2012. The result is lower prices in 2012 than in 2011 for the major dairy products and consequently for the All-Milk price.
The 2012 All-Milk price is forecast at $18.30 to $19.10 per cwt. That’s an increase from December’s level and due mostly to strong whey prices, ERS said.
Feed prices
The forecasted 2011/12 season-average corn price was lowered 20 cents on each end of the range to $5.70 to $6.70 per bu. Prices received by producers remain below cash bids, limiting upward potential in the season-average farm price, ERS noted.
Forecast soybean meal prices were raised this month by $10 a ton on each end of the range to $290 to $320 per ton. The preliminary December milk-feed price ratio was calculated at 1.88 in the December Agricultural Prices report. Based on price forecasts for feed ingredients, 2012 ration values could be somewhat lower than in 2011, but are likely to remain high by historical standards. Milk prices are expected to be lower in 2012 than in 2011, suggesting the milk-feed price ratio is unlikely to improve this year.
Cow numbers
Producers may still be adjusting to the rise in feed prices that began last year and the prospect of lower milk prices in 2012. The fourth-quarter 2011 estimate for cow numbers was lowered slightly; but when rounded, resulted in no change from December’s 9.2 million head. No change was made in 2011 output per cow, which is projected to be 21,315 pounds. Herd size forecasts for 2012 were unchanged from December, and herd size will likely decline slightly from 2011 to 9.190 million head. The total milk production forecasts for both 2011 and 2012 remain unchanged from December at 196.0 and 198.5 billion pounds, respectively.
The Jan. 27 Cattle report will provide an indication of producer intentions for heifer retention.
Fat basis milk equivalent imports for 2011 were raised this month from 3.3 to 3.4 billion pounds, due mainly to an unexpectedly large rise in cheese imports in October. Butterfat also logged an increase in October, but not as large as the rise in cheese imports. For 2012, cheese and butterfat imports are expected to remain stable and in line with 2011 levels; consequently, the import forecast is increased slightly to 3.3 billion pounds. The 2011 milk equivalent imports on a skim-solids basis were raised from last month to 5.4 billion pounds. As with the fat basis forecast, higher cheese imports last fall are largely responsible for the rise. The higher skim-solids basis imports for cheese were offset by slower casein imports.
The 2012 skim-solids import forecast was adjusted down to 5.1 billion pounds due to lower expected imports of milk protein concentrates.
Fat basis exports for 2011 were unchanged from last month at 9.3 billion pounds. However, there was some shifting among products. Butterfat exports were off sharply for October, but the lower butterfat export was offset by higher cheese and food product exports. The fat basis export forecast for 2012 remains at 8.6 billion pounds, unchanged from December. Butterfat exports are expected to remain weak this year.
On a skim-solids basis, 2011 export projections were raised 200 million pounds from December to 33.8 billion pounds due to higher movement in lactose, food products, and infant preparations. Skim-solids basis exports are forecast at 31.9 billion pounds in 2012, unchanged from December. Year-ending stocks on both a fat and skims-solids basis were adjusted downward slightly for both 2011 and 2012. The lower 2012 ending stock forecast is based largely on lower carry-in stocks. Butter stocks at the end of November were above 2010 levels but still below those of four out of the most recent five years. Stocks of all natural cheeses are above those of the most recent 5 years except for 2010.
Similarly, nonfat dry milk (NDM) stocks are above those of the last five years except for 2008.
Dairy prices
Higher milk production and lower export prospects in 2012 will pressure prices in 2012 compared with 2011 for all products except whey. The 2012 prices forecasts were changed only slightly this month compared with December. The 2012 cheese price is forecast at $1.655 to $1.735 a pound, down slightly from December. The forecast butter price is unchanged from December at $1.605 to $1.715 a pound.

These forecasts are based on the current price weakness for these products. Only NDM and whey prices were raised, based on current price strength and the expectation that export demand will remain firm.
The 2012 NDM price is forecast at $1.370 to $1.430 a pound, up slightly from December. Likewise, the whey price forecast was boosted from December to 60.5 to 63.5 cents a pound.
The Class III milk price was raised from December to $17.10 to $17.90 per cwt. based mostly on expected strong whey prices. The Class IV price was also raised from December to $16.45 to $17.35 per cwt. based on higher expected NDM prices. The All-Milk price is forecast at $18.30 to $19.10 per cwt., also a rise from December.

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