USDA Forecasts More Milk, Slowing Demand, Weaker Prices in 2012

August 22, 2011 05:04 AM

The Class III price is forecast at $16.10 to $17.10 per cwt. in 2012.

Cow on sand   Van Beek   smallMore milk and slowing demand will likely weaken prices across the board in 2012, according to USDA’s Economic Research Service (ERS).
Milk production will continue to rise both this year and next, ERS said in its Aug. 17 Livestock, Dairy and Poultry OutlookThe U.S. dairy cow herd continues to expand, but output-per-cow projections have decreased.
Fats basis exports will rise in 2011 from last year but soften slightly in 2012. Skims-solids export will show slight increases both this year and next. Higher milk production and slower growth in exports will pressure prices in 2012.
Corn prices continue their upward trajectory, with August forecasts for 2011-12 raised from July to $6.20 to $7.20 per bu. Soybean meal prices were raised as well, to $355 to $385 per ton for 2011-12. Alfalfa prices are expected to remain high into 2012.
The most recent Cattle report estimated that producers were retaining 4% more replacement heifers than last year. The retention, combined with a 1% higher dairy cow inventory on July 1, led to an increase in the dairy herd forecast for both 2011 and 2012.
The U.S. dairy cow herd is forecast at 9.195 million head in 2011 and 9.190 million head in 2012. Milk per cow is forecast to increase fractionally in 2011 to 21,275 pounds as higher feed prices and hot weather take a toll on output. Next year, output per cow is forecast to increase to 21,630.
Milk production is projected at 195.6 billion pounds in 2011, down from July’s estimate due to lower output per cow. Production in 2012 is forecast at 198.8 billion pounds, reflecting a larger expected herd size. The larger herd size is offset a by lower forecast of milk per cow as feed prices will keep growth in output per cow below trend.
Milk equivalent imports were reduced in August from July to 3.2 billion pounds on a fats basis and 4.8 billion pounds on a skims-solids basis. Lower expected cheese imports are the main cause.
Fats basis exports were raised from July to 9.0 billion pounds in 2011 based on strength in butterfat exports. Fats basis exports for 2012 remain unchanged from last month at 8.7 billion pounds. Exports on a skims solids basis for 2011 were raised slightly from July to 32.2 billion pounds and to 32.3 billion pounds for 2012. Increases in milk production in Oceania and weakening international demand will impact exports.
Prices estimates for cheese, butter, and whey were increased from July based on current price strength. Nonfat dry milk (NDM) prices were lowered from July based on weaker international prices. Cheese prices are expected to average $1.855 to $1.875 per pound in 2011 and slip to $1.670 to $1.770 per pound in 2012. Butter prices are projected to average $1.955 to $1.995 per pound this year and fall to $1.615 to $1.745 per pound in 2012. NDM prices are forecast to average $1.500 to $1.520 per pound in 2011 and fall to $1.370 to $1.440 per pound next year. Whey prices are expected to average 48.0 to 50.0 cents per pound in 2011 and decline to 41.1 to 44.0 per pound in 2012.
Class III prices were raised from July to $18.40 to $18.60 per cwt. based on higher expected cheese prices. The Class III price is forecast at $16.10 to 17.10 per cwt. in 2012, a year-over-year decline from this year but a slight increase from the July forecast. The 2011 Class IV price forecast was lowered from July to $19.05 to $19.35 per cwt. based on lower NDM prices. The 2012 Class IV forecast was also lowered from July’s forecast to $16.45 to $17.55 per cwt.
The All-Milk price projection is $20.30 to $20.50 per cwt., an increase from July. Similarly, the All-Milk price forecast was raised to $17.80 to $18.80 per cwt. for August, but this represents a substantial year-over-year decline from 2011.

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