USDA Projects Higher Feed and Milk Prices, Increased Milk Production in 2011

February 19, 2011 05:05 AM

Modest herd expansion, robust exports also expected

Source: USDA’s Economic Research Service

Despite higher feed prices, U.S. milk production is expected to rise in 2011, but not by as much as in 2010, USDA’s Economic Research Service (ERS) said this week in its February Livestock, Dairy, and Poultry Outlook.

Both the national dairy herd and production per cow are forecast to increase, ERS said.

The all-milk price is forecast substantially higher this year at $17.70 to $18.40 per cwt., as recovering domestic use for dairy products will compete with exporters for available supplies. Global demand for fats and powder will push the Class IV price higher and support the Class III price to keep milk in cheese production.

Feed prices continue upward. The soybean meal price is projected at $340 to $380 per ton, up from last month’s projection. Slightly lower planted acreage and lower yields combined to cause the rise in the forecast. The corn price forecast was also raised, to $5.05 to $5.75 per bushel. Despite an increase in harvested acreage, corn production is forecast lower due to an expected 11.9-bushel fall in the national average yield per acre. The corn season-ending stocks-to-use ratio is forecast to be the lowest since 1995/96.

The nation’s dairy herd continues a modest expansion. The fourth-quarter 2010 dairy cow population was higher than in the corresponding quarter of 2009. The January Cattle report indicated that milk cows and dairy replacement heifers had both risen by 1% year-over-year. The Livestock Slaughter report showed dairy cow slaughter in December 2010 ahead of both November and December 2009. The proportion of replacements relative to cows is about the same as last year. The evidence suggests an ample number of dairy replacements are available for both herd freshening and some expansion.

Despite substantially higher feed costs, higher milk prices could provide enough margin for many producers to continue the herd expansion that began last fall. Herd size will likely contract toward the end of 2011 as already high feed costs continue to escalate. Over the course of the year, the herd size will average 9.15 million cows. Production per cow is expected to rise by about 1%, near trend and below last year’s stellar 2.8% increase. The result will be 196.1 billion pounds of milk produced in 2011.

Milk equivalent imports for 2011 are forecast at 3.9 billion pounds on a fats basis and 4.7 billion pounds on a skim-solids basis, continuing the downward trend of the past two years. Milk equivalent exports are projected to reach 6.4 billion pounds on a fats basis and 30.7 billion pounds on a skim-solids basis.

The export forecasts are below 2010 totals, and although world supplies are tight, higher production from Oceania over the course of the year is expected to ease the international supply situation. Exporters will have to compete with a resurgent U.S. domestic market where use is expected to climb by 2.3% on a fats basis and 3.1% on a skim-solids basis.

Product prices will be higher across the board this year than in 2010. Cheese prices are forecast at $1.640 to $1.710 per pound, and have been buoyed by high prices for butter and nonfat dry milk (NDM). Commercial use of cheese rose in 2010 and is expected to remain strong in 2011. The exceptionally high butter and NDM prices reflect robust export prospects for both products. Although prices will likely retreat from current highs as milk production from Oceania increases seasonally, tight world butter supplies should maintain the price above 2010 for much of the year.

The butter price is expected to be $1.710 to $1.810 per pound. NDM prices are expected to be $1.345 to $1.405 per pound on the same conditions as those for butter prices. Whey prices are also expected to rally, as strong global powder demand may encourage some substitution of lower priced whey for other powder products. Whey prices are expected to be 40.0 to 43.0 cents per pound.

Milk prices will be higher this year. The Class IV price is expected to average $16.70 to $17.50 per cwt. The Class III price is expected to be below the Class IV price this year and to average $15.80 to $16.50 per cwt. The expected higher Class prices will push the all-milk price well above 2010 to a forecast $17.70 to $18.40 per cwt. for 2011.

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