There is also uncertainty as to the level of dairy exports for 2013. Dairy exports are now an important factor for the level of milk prices. Preliminary data indicate exports set a record high in 2012, accounting for about 13.6 percent of U.S. milk production on a total solids basis.
As I write this article the middle of December, final milk production data and milk prices referred to for 2012 are preliminary.
Lingering impact of drought
Let’s first look at the impact of the 2012 drought. Milk production for the first quarter of 2012 on a daily basis was 4.1 percent higher than the year before and for the second quarter 2.1 percent higher. This growth in milk production pushed down the U.S. all-milk price from $19 in January to a low of $16.20 by May and June. Much lower milk prices, along with rising feed prices, cut margins. Margins which approach $9 per hundredweight for milk some months in 2011 were $6.30 for January and fell to about $2 by June and below $2 for July and August. As a result, milk cow numbers, which were increasing beginning back in October 2010, peaked in April and started to slowly decline by May. With much lower margins, producers cut back on grain and concentrate being fed, which dampened increases in milk per cow. Increases in milk per cow fell below 1 percent by June and was negative for August and September and up only slightly for the remainder of the year. With the declining number of milk cows and dampened increases in milk per cow milk, production for the last half of the year fell slightly below year–ago levels. This improved the U.S. all-milk price, reaching $22.10 in November. But, with high feed cost, margins improved to just over $6 per hundredweight of milk.
The year ended with 1.8 percent more total milk being produced than 2011.
Feed prices will remain high for at least the first half of 2013, keeping margins relatively tight. We can expect milk cow numbers to continue to decline for the first half of the year, and milk per cow below year-ago levels. Assuming good moisture and favorable outlook for 2013 crops, feed prices will fall for the last half of the year, improving margins. But the financial stress experienced from 2012, which forced an above-normal number of dairy operations to exit the business or down-size, will persist. For the year, we could see the average number of milk cows 0.5 percent to 1.0 percent lower than 2012 and milk per cow up about 1 percent, resulting in an increase of less than 0.5 percent in total milk production over 2012.