USDA: Milk Prices Likely to Soften from 2011

November 18, 2011 10:51 AM

Milk production will climb in 2012, exceptionally high feed prices to continue.

Milk production is forecast to rise in 2012, while higher availability of dairy products worldwide will combine with additional U.S. supplies to pressure product prices next year, USDA’s Economic Research Service (ERS) said in its "Livestock, Dairy and Poultry Outlook" this week.
The U.S. dairy herd will be slightly smaller in 2012, but increased milk per cow will boost milk production above 2011, ERS added. Overall, dairy producers are facing exceptionally high feed prices and this situation will likely continue into 2012.
Exports are expected to decline next year because of higher milk production among competitors. 2012 domestic dairy use, however, is expected to see its highest level since 2006, noted ERS.
The All-Milk price is forecast at $18.05 to $18.95 per cwt. next year, lower than the $20.10 to $20.20 per cwt. expected in 2011.
The November World Agricultural Supply and Demand Estimates report projected the season average corn price at $6.20 to $7.20 per bushel for the 2011/12 crop year, unchanged from October’s price forecast. Soybean meal prices are projected at $310 to $340 per ton, a $25 per ton reduction from October on both ends of the price range.
USDA does not forecast alfalfa prices; however, the preliminary price paid for alfalfa was reported in the October Agricultural Prices report to be $203 per ton in October, up from $196 per ton reported in September. Alfalfa prices will likely remain well above the average of recent years until at least next spring.
Despite high feed prices, milk production continues to advance. USDA forecasts 2011 milk production at 196 billion pounds in 2011, virtually unchanged from October’s forecast. While third-quarter reported cow numbers were slightly lower than October projections, the U.S. herd size estimate remains at 9.2 million cows for this year. The number is expected to slip to 9.185 million cows in 2012.
Milk per cow is forecast higher than October’s forecast, largely offsetting the lower than forecast third-quarter cow number, ERS said. Production in 2012 is forecast at 198.4 billion pounds, unchanged from October. Next year, production per cow is forecast at 21,600 pounds, up from the 21,305 pounds expected this year. The increase in milk per cow forecast in 2012 and the additional milking day more than offsets the small projected decline in cow numbers, accounting for the overall increased milk production next year.
Milk equivalent imports on both a fats and skims-solids basis were unchanged from October projections for this year and 2012. Fats basis imports are forecast at 3.2 billion pounds in both 2011 and 2012. Skims-solids imports are forecast at 5.3 billion pounds this year, falling to 5.1 billion pounds next year.
Commercial exports for 2011, on both a fats and skims-solids basis, were raised from October’s forecasts. Fats basis exports were raised to 9.2 billion pounds and skim-solids exports were increased to 33.1 billion pounds based on expectations of stronger lactose and whey exports. Commercial export forecasts for 2012 remain unchanged from October and are projected at 8.6 billion pounds, fats basis, and 31.9 billion pounds, skims-solids basis. Exports are expected to decline next year because of higher milk production among competitors.
Commercial domestic use is forecast at 188.6 billion pounds, fats basis, in 2011. This forecast is virtually unchanged from October and continues the gradual upward trend observed over the last several years. In 2012, domestic use is expected to climb to 192.0 billion pounds fats basis, which would represent the strongest year-over-year rise since 2006.
Commercial domestic use on a skims-solids basis is forecast at 167.4 billion pounds, a slight downward revision from October, but still a robust recovery from 2010’s year-over-year decline. Domestic use is expected to continue upward in 2012, reaching 170.6 billion pounds and posting another strong year-over-year rise.
Nonfat dry milk (NDM) prices were lowered slightly in this month’s forecast. The 2011 cheese price is forecast at $1.820 to $1.830 per pound and the butter price at $1.960 to $1.990 per pound. NDM prices are projected at $1.500 to $1.520 per pound and whey prices at 52.5 to 53.5 cents per pound. Both domestic use and exports for whey have been robust this year. Next year, the major product prices are all expected to be lower than in 2011. However, the 2012 price forecasts, except for NDM, were revised upward slightly from October. The cheese price is expected to be $1.685 to $1.775 per pound; the butter price is forecast at $1.625 to $1.745 per pound. The NDM price is forecast at $1.355 to $1.425 per pound and the whey price at 48.5 to 51.5 cents per pound. The lower prices expected next year reflect larger domestic production, and stronger competition overseas, which will pressure exports.
Milk prices will be lower in 2012 compared with 2011. The Class III milk price, which is projected to average $18.30 to $18.40 per cwt. this year, is forecast to slide to $16.70 to $17.60 per cwt. in 2012. Likewise, the Class IV price will average $19.05 to $19.25 per cwt. in 2011 and is forecast at $16.40 to $17.40 in 2012.

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