USDA Forecasts Another Tough Year for Dairy

03:55PM Feb 22, 2013
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But feed prices are expected to decline as new-crop corn and soybeans are harvested later this year.

Net cash income for dairy operations will fall 14.5% this year, as higher feed prices through the first three quarters of the year more than outweigh the impact of higher milk prices.

That’s the assessment contained in the USDA’s annual dairy outlook delivered today at the Department’s 2013 Agricultural Outlook Forum. Jerry Cessna, a senior agricultural economist with USDA who delivered the outlook, forecast that net cash incomes would fall from $98,000 in 2012 to $83,900.

Cessna said that feed prices will remain high through the summer of 2013, then decline as a new crop of corn and soybeans are harvested. By the end of the year, prices may be below the USDA’s estimate of $4.80-per-bu. corn price for the entire 2013/14 growing season.

"There could be some relief for dairy farmers toward the end of 2013," said Cessna.

The dairy industry set several records last year, Cessna noted. The annual milk-feed price ratio dropped to the lowest on record. A record amount of milk, more than 200 billion pounds, was produced. And more cows were slaughtered than any year since 1986, when the government paid the industry to thin the cow population.

Cessna expressed surprise at increases in industry’s milk production during the fourth quarter of last year, which partly stemmed from an increase in the cow population. "It is not expected that cow numbers will continue to rise," he said. "The fundamentals point toward lower cow numbers in 2013."

Cessna noted that dairy cow slaughter was high throughout last year. By January of this year, the inventory of replacement heifers expected to calve in 2013, 2.9 million head, was down from 3.1 million the year before.

What’s ahead for dairy prices? Cessna said prices for various dairy products are likely to continue in recent direction for the first three months of 2013. During the last two months of last year, Cheddar cheeses prices fell from $2.01 per pound to $1.79. Butter prices dropped from $1.84 to $1.60 per pound.

"The real story is what’s happened on non-fat dry milk and whey," said Cessna, noting that stocks of those products shot up during the last two months of 201. During that time, the price of non-fat dry milk rose slightly.

"Inventory levels at the beginning of 2013 seem to indicate that supplies of dairy products are plentiful," said USDA’s report.

USDA projects that the number of cows will decline by 0.7% this year due to high feed prices and in response to low milk feed rations in 2012. Even so, those cows will be more productive.

"Daily output per cow is projected to grow at a rate of 1.3%, a slower rate than it has grown over the last two years," said Cessna. "Together, these changes are expected to result in a small increase in daily milk production of 0.6%."

As the rate of milk production increases slows, the price of dairy products is expected to rise in 2013. Price increases, though, will be tempered by strong beginning stocks. USDA forecasts higher prices in 2013 for cheese, nonfat dry milk, and dry whey.

"Butter is the exception," USDA’s report says, "with the 2012 price being within the range of the expected average price for 2013. Class III and Class IV milk prices are both expected to rise, and the All-Milk price is expected to rise from $18.50 per cwt., in 2012 to an average ranging from $18.90 to $19.60 in 2013."

Meanwhile, Cessna expects relatively small increases in exports, on both a fat and skim-solid basis. USDA expects ending stocks of dairy products to fall by the end of the year by 6.5% on a fat basis and by 3.2% on a skim basis.