Lower corn prices and strong international dairy demand are expected to strengthen the outlook for U.S. dairies.
U.S. farmers are on track to achieve record-high milk output and corn production over the next year, according to today’s World Agricultural Supply and Demand Estimates (WASDE) from USDA.
Today’s report also projects that dairy product prices will rise, leading to an increase in the averaged All-Milk price to as high as $19.90 per cwt. for 2013, and $20.35 per cwt. for 2014.
Those forecasts should improve the Milk-to-Feed-Ratio and "point to more profitability for dairies in the next year," says AgDairy’s Robin Schmahl, a Wisconsin-based dairy and commodity trading specialist. "Dairy producers should be in a better position over the next year."
USDA lowered projections for 2013 milk production by 300 million pounds from last month’s report, to 201.8 billion pounds. It left next year’s milk output unchanged at 204.5 billion pounds. The forecasts for both this year and next are record-high numbers.
Strong international demand for dairy products and tightening supplies are expected to support increases for nonfat dry milk, butter and cheese prices, the report noted. USDA left the 2013 whey price forecast unchanged at $0.585-$0.605 per pound but raised it slightly for 2014. Higher product prices are also expected to boost the 2013 Class IV forecast to $18.60-$18.90 per cwt., and next year’s outlook to $18.45-$19.55.
Class III Price Takes a Back Seat
Interestingly, says Schmahl, USDA expects the lowest prices in Class III milk, which is used for cheese, compared to Class IV and the All-Milk Price. For 2014, USDA forecasts Class III prices at 17.05-$18.05 per cwt., up 50 cents per cwt. from its August estimate. Today’s WASDE report raised the 2013 Class III price 10 cents from last month’s estimate to $17.90-$18.10 per cwt. USDA’s price increase may reflect the recent upturn in the cheese and butter markets, says Schmahl.
The price differential between Class III and Class IV milk likely signifies the increased global demand for milk powders and the heavy inventory of cheese stocks, he adds.
While all signs point to strong international dairy demand and the U.S. has been price-competitive lately, "we’re not the only one trying to fulfill that demand," cautions Schmahl. "Other countries are rising to that challenge. The European Union will be going off the quota system in 2015, and Australia wants to increase its milk production."
Booming Corn Production
A bigger-than-expected corn crop of 13.843 billion bushels surprised the market and pressured December corn futures some 10 cents per bushel lower this morning, says a report from our partners at Pro Farmer. Today’s WASDE production number exceeds the August report figure of 13.763 billion bushels and far surpasses 2012’s output of 10.780 billion bushels.
The WASDE report also foresees a smaller old-crop carryover and higher yields from this year’s corn harvest. UADA lowered the projected season-average farm price for corn 10 cents at both ends of the range to $4.40 to $5.20 per bushel.
Corn, the biggest feed stuff for U.S. dairies, will be key, Schmahl says. ""Cheaper corn often means cheaper milk" as dairies increase milk output.