The flood of milk next year will pressure dairy prices to lower – but still strong – levels.
Responding to lower feed costs and strong milk prices, U.S. dairy producers will increase their flow of milk to record levels in 2015, according to USDA’s World Agricultural Supply and Demand Estimates (WASDE) released today.
Next year’s U.S. milk output is estimated at 212.1 billion pounds, the most ever. That’s 6 billion pounds more – or 2.9% higher -- than is expected in 2014.
While USDA’s sharp 2015 increase surprises dairy market analyst and trader Robin Schmahl, he doesn’t doubt that the milk production forecast is reachable. "We’ll meet that and, potentially, exceed that production of 212.1 billion pounds," Schmahl says. "If world demand is going to continue to increase, we’ll need to produce 6 billion more pounds of milk."
In particular, the Central Region, or Midwest, holds significant potential for increased milk production, he adds. Dairies are ready to ramp up after the area's severe winter.
"We’re just moving into spring flush, when normally we’d be winding down," says Schmahl. "We’re seeing milk receipts increasing at plants. We’re also seeing significant expansion, both in brand-new dairies and remodeling. After the heavy culling last year, dairies are adding cows. There’s a real demand for heifers."
The WASDE report also forecasts that the flood of milk will pressure dairy prices lower next year. Class III prices for 2015 are projected to average $17.40 per cwt., or $16.90-$17.90 per cwt. That's down from the $20.55-$20.85 USDA expects for 2014.
Class IV prices, which have surpassed Class III levels largely on export demand for milk powders, will dip to the $18.55-$19.65 range. That’s notably lower than this year’s expected $21.25-$21.65 Class IV average.
USDA anticipates the 2015 All-Milk price will drop to an average of $20.20 per cwt., down from the 2014 expected average of $22.85 per cwt. Although 2015’s expected price levels will fall from this year’s record heights, they’re still historically strong.
"They’re good prices, no doubt about it," says Schmahl.
Profit margins for U.S. dairies should remain strong, he adds. Dairies’ "Income over Feed Costs" reached $15.05 per cwt. for April, just below the record $15.35 per cwt. for March. "Profit margins will be a little tighter, but it’s going to be a good year," he says.
Elsewhere in today's WASDE report, USDA projected record corn and soybean production in 2015. The larger corn crop and carryover is likely to result in a season-average farm price of $3.85 to $4.55 per bu., down from $4.50 to $4.80 per bu. for 2013-14, USDA said.
"Back in January, I projected that corn prices would average about $3.50 per bu. at this year’s harvest, and I’m going to hold to that," says Schmahl.
USDA estimates soybean meal prices at $355 to $395 per ton, compared with $485 per ton for 2013-14.
Read the full report here.