Larger-Than-Expected Corn Carryover May Boost Dairy Outlook

September 12, 2012 11:30 AM
Larger-Than-Expected Corn Carryover May Boost Dairy Outlook

Today’s USDA report is seen as bearish for corn prices, moderately bullish for livestock producers.

The prospect of larger-than-expected corn supplies after a season of drought dominated USDA’s World Agricultural Supply and Demand Estimates (WASDE) report today, consigning dairy forecasts to a relative nonevent.

Milk production, dairy demand and prices remained relatively unchanged from last month's WASDE outlook. 2012 U.S. milk output is forecast at 199.9 billion pounds, down from 200 billion pounds projected in August but still higher than 2011’s production of 196.2 billion pounds.

USDA’s U.S. corn outlook reflected an increase in expected 2012-13 beginning stocks, which more than offset lower production. Today's WASDE report put the nation’s 2012 corn crop at a 6-year low and pegged the soybean crop as the smallest in nine years. But, bucking expectations of shrunken corn supplies, USDA raised the carryover into the 2012-13 year by 160 million bushels from last month, to 1.181 billion bushels. It also raised expectations for higher feed usage.

The report was considered bearish for corn prices. December corn closed at $7.69 per bu., down 8¢.

The WASDE projections, however, may boost the outlook for livestock producers.

“High corn prices have been killing demand,” said Robin Schmahl, marketing and hedging specialist with AgDairy LLC.

Corn at $8 per bu. has resulted in heavier-than-normal livestock culling, slower ethanol production and fewer exports, Schmahl said.

“A weakening corn price will slow dairy cow culling,” he said. Likewise, rising milk prices should help dairies “stop the bleeding,” added Schmahl.

Class III futures prices have surpassed $19 per cwt. on declining milk production and expectations of stronger demand in the coming months.

Today’s report estimated the 2013 All-Milk price at $17.85 to $18.85 per cwt., up from $17.80 to $18.00 per cwt. that USDA has estimated for 2012.

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