USDA: Dairy Product Demand Strengthens, but More Milk and Stocks Keep a Lid on Prices

July 23, 2010 03:03 PM

Despite this year’s reduced dairy herd size, increased milk per cow means more milk this year and next, USDA’s Economic Research Service (ERS) said this week in its “Livestock, Dairy, and Poultry Outlook.”


“Milk per cow continues to trend upward on a year-over-year basis,” USDA-ERS said. “The increased output per cow will more than offset reduced herd size this year, resulting in more milk. Production in 2010 is forecast at 191.2 billion pounds. Next year, the forecast decline in cow numbers is expected to slow even further and production per cow is expected to be closer to trend, rising 1.6% year-over-year. The result is an estimated 193.5 billion pounds of milk in 2011.”


Among other report highlights:


  • Feed prices have been favorable for producers this year compared with last. Although corn and soybean meal prices are expected to average higher for the 2010-11 crop year, the increases are expected to be moderate.  
  • Corn prices are forecast to be $3.45/bu. to $4.05/bu. in the 2010-11 crop year. Likewise, soybean meal prices are likely to rise slightly in 2010-11 to $240/ton to $280/ton. The milk-feed price ratio has risen since 2009 and will likely average about 2.3 for the current year. Given the outlook for feed and milk prices, the ratio will remain nearly the same in 2011.  
  • Although producer returns have improved over 2009, the improvement is not enough to result in higher average cow numbers this year or next. Cow numbers are expected to average 9.1 million head this year and be about the same next year. According to the June Milk Production report, monthly cow numbers have increased fractionally since the first of the year but still trail year-earlier levels.  
  • Economic recovery is continuing apace in Asia and South America and, coupled with weaker production in Oceania, has tightened global dairy product supplies. However, prices were lower at the most recent global Dairy Trade auction.  
  • The most recent Cold Storage report shows butter stocks at the end of May at 16% below year-earlier levels and total cheese stocks are 5% ahead of a year ago.  
  • The rise in domestic use and exports will draw down stocks.  
  • The current situation has Class IV prices above Class III prices, a reflection of the tightness in fat availability. Lower fat tests have boosted butter prices and may have helped firm up cheese prices as well. This situation should correct itself early in 2011. Prices for the major dairy products, except butter, are expected to rise slightly next year.  
  • Class IV milk prices are forecast to average $14.65/cwt. to $15.05/cwt. this year and increase slightly to $14.40/cwt. to $15.50/cwt. in 2011. The Class III price is projected to average $13.80/cwt. to $14.10/cwt. in 2010, and climb to $14.40/cwt. to $15.40/cwt. in 2011. The all-milk price is expected to average $15.80/cwt. to $16.10/cwt. in 2010, with a rise to $15.90/cwt. to $16.90/cwt. in 2011.

Read the full report here.

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