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USDA: Firm Demand to Keep Milk Prices at 2010 Levels

11:04AM Dec 27, 2010

An expected rise in domestic use along with good export prospects and only a moderate rise in milk production are expected to keep milk prices in 2011 very near 2010 levels, USDA’s Economic Research Service (ERS) said in its Dec. 20 Livestock, Dairy, and Poultry Outlook.

However, higher feed prices will likely squeeze producer profits in the upcoming year.

USDA forecasts corn prices at $4.80 to $5.60/bu. for the 2010-11 crop year. Soybean meal prices are expected to reach $310-$350/ton, up from an average of $311/ton for 2009-10. The increase in feed ingredient prices will boost the benchmark 16% protein mixed dairy ration price nearly 20% above 2010.
Higher feed costs already are pressuring producers but won’t likely affect cow numbers until the second half of 2011, ERS said. Cow numbers will continue to increase through the first half of 2011 and are expected to decline slightly in the second half of the year. These changes are expected to leave the herd size next year slightly above the 9,110,000 head in 2010 at a projected 9,125,000 head.
Milk per cow is forecast to continue to rise next year, but at less than half the pace forecast for 2010, noted ERS. The current year’s increase in milk per cow was aided by good weather in addition to moderate feed prices. Overall, milk production will be slightly higher next year at 195.5 billion pounds, up 1.4% from the 2010 estimated total of 192.8 billion pounds.
Strong domestic use, a good export outlook, and only a moderate increase in milk production provide the basis for continued strong price performance estimates for dairy products into 2011.
Export prospects for nonfat dry milk should help keep Class IV milk prices firm into 2011, but not quite as high as this year’s $15.00-$15.20/cwt. expected average. In 2011, Class IV milk is forecast to average $14.50-15.40/cwt.
Class III milk prices should be higher next year. For 2010, the Class III price is expected to average $14.35-$14.45/cwt. and to climb to $14.45-$15.25/cwt. next year.
On balance, this leaves the all-milk price next year at $15.90-$16.70/cwt., virtually unchanged from the 2010 projected average of $16.25-$16.35/cwt.