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Milk Prices Expected to Decline in 2012 as U.S. Production Rises

17:43PM Oct 18, 2011

Rising global production will likely make the international market more competitive for U.S. exports in 2012.

Despite relatively high feed prices, milk production is expected to rise both this year and next, and lower milk prices are expected for 2012, USDA’s Economic Research Service (ERS) said today in its monthly Livestock, Dairy and Poultry Outlook.
The U.S. cowherd will likely contract slightly next year, but increasing yield per cow will boost overall production, ERS noted. Rising global production will likely make the international market more competitive for U.S. exports in 2012.
ERS forecasts the All-Milk price at $20.00 to $20.10 per cwt. for 2011, and projects it will slip to $17.75 to $18.65 per cwt. next year.
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Feed prices are expected to remain relatively high through the end of 2011 and into next year. Corn prices are forecast at $6.20 to $7.20 per bushel for the 2011/12 crop year. This forecast represents a small reduction from September’s forecast prices and is based on higher reported carry-in stocks and slightly lower projected corn exports, ERS said.
Similarly, the soybean meal price forecast was lowered from September to $335 to $365 per ton for the 2011/12 marketing year, based on a lower soybean export forecast in October.
Preliminary estimates placed alfalfa prices at $196 per ton in September in the face of almost 5% lower production in 2011. Significant relief from the current price level is not likely until next spring.
Milk production for 2011 is projected at 195.9 billion pounds, a 200-million-pound increase from September’s forecast. Both higher cow numbers and yield per cow contribute to the rise, said ERS.
Despite high feed prices and continued heavy cow slaughter, the U.S. dairy herd continues to expand more rapidly than anticipated. The herd is forecast to average 9.2 million head for the year. Yield per cow has also risen more rapidly than anticipated and is forecast at 21,300 lb., an increase from September estimates. Output per cow may not have been as diminished by the hot summer temperatures as expected.
In 2012, the U.S. dairy herd is expected to contract to 9.19 million head. This forecast represents both a year-over-year decline and a decline from the September 2012 forecast.
"Although corn and soybean meal prices have been revised downward, they remain high by historic levels and continued expected high alfalfa prices along with lower milk prices will likely stimulate a herd reduction during 2012," noted ERS. "These fundamentals will also limit the rise in output per cow next year, which is forecast at 21,600 lb. despite an extra milking day in 2012."
Milk-equivalent imports for 2011 are forecast at 3.2 billion pounds on a fats basis and 5.3 billion pounds on a skim-solids basis this year, both unchanged from September’s forecast. Next year, fat-basis imports are forecast unchanged at 3.2 billion pounds, but skim-solids imports are expected to slide to 5.1 billion pounds, also unchanged from September’s forecast.
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Fat-basis exports are forecast at 9.1 billion pounds for 2011, a slight downward revision from September’s forecast due to lower expected butter and cheese exports. Favorable conditions in Oceania coupled with rising seasonal production are expected to pressure prices and increase competition particularly for U.S. dairy exports in 2012.
Skim-solids exports are forecast at 32.6 billion pounds this year, unchanged from September. In 2012, milk-equivalent exports on both a fats and skim-solids basis are forecast to be lower than in 2011. Fat-basis exports are forecast at 8.6 billion pounds, down fractionally from September’s forecast. Skim-solids basis exports are placed at 31.9 billion pounds, a decline from September’s projection.
This year, domestic commercial milk use is forecast to reach 188.6 billion pounds on a fats basis and 167.8 billion pounds on a skim-solids basis. In 2012, domestic commercial use is forecast to rise to 192 billion pounds on a fats basis and 170.8 billion pounds on a skim-solids basis.
"Both forecasts would represent a healthy rise in use," ERS said, "especially for the fats basis forecast after several years of slow growth."
On a skim-solids basis, the 2012 forecast would represent the second year of growth after a decline in 2010.
Overall, prices for dairy products are expected to be lower in 2012 after rising sharply in 2011. Cheese and butter prices were lowered in October based on weaker international prices. The 2011 cheese price is forecast at $1.810 to $1.820 per pound and the butter price is forecast at $1.940 to $1.970 per pound, both lower than September forecasts.
Nonfat dry milk (NDM) is forecast at $1.505 to $1.525 per pound, unchanged from September. Whey is forecast at 51.5 to 52.5 cents per pound, with the upper end of the range raised slightly from last month. The whey forecast is based on expected continued robust domestic use and relatively strong exports despite higher prices.
Next year, the major product prices are all expected to be lower. The cheese price is expected to be $1.665 to $1.755 per pound; the butter price is forecast at $1.600 to $1.720 per pound. The NDM price is forecast at $1.355 to $1.425 per pound, and the whey price is forecast at 45.5 to 48.5 cents per pound. The lower prices reflect larger domestic production and stronger competition overseas, which will pressure exports.
The Class III price is forecast at $18.15 to $18.25 per cwt. for 2011 and $16.30 to $17.20 per cwt. in 2012. The Class IV price is forecast at $19.05 to $19.25 per cwt. this year and $16.30 to $17.30 per cwt. next year.