On the milk sales side, the continued rather slow growth in the economy will mean slow growth in sales. Fluid milk sales will likely continue its downward trend, with cheese sales growing as well as some of the other dairy products like yogurt.
With little or no growth in milk production, exports are likely to be lower but could still account for about 13 percent of milk production on a total solids basis.
Drought conditions not only in the U.S. but parts of Western Europe and higher feed prices worldwide have slowed milk production in three of the five leading exporting countries —United States, the European Union countries and Argentina, which combined account for about 60 percent of the world dairy trade. The other two countries — New Zealand and Australia — are experiencing increases in milk production, but not the double-digit increases as experienced a year ago.
World demand continues to grow. So, for at least the first half of the year, the world supply of dairy products will remain tight, particularly for milk powders and whey proteins and less so for cheese and butter. This will be favorable for U.S. exports in 2013.
Higher prices forecast
Under this dairy situation, my forecast for 2013 milk prices is shown in the table.
I forecast the Class III price to average $18.75 for the first quarter, $18.50 for the second, $19.00 for the third, and $18.45 for the fourth. The respective average Class IV prices are $18.50, $18.40, $18.10 and $17.90. And the respective average U.S. all-milk prices are $20.15, $19.90, $20.40 and $19.85.
Averages for the year will be $18.65 for Class III, about $1.25 higher than 2012; Class IV $18.20, about $2.15 higher than 2012; and the U.S. all-milk price $20.00, about $1.55 higher than 2012.
But recent history tells us that milk prices can deviate quickly with rather small anticipated changes in milk production and/or sales both domestic and exports. With the uncertainties I indicated, milk prices could turn out quite different, especially for the last half of the year.
Bob Cropp is an economist and professor emeritus at the University of Wisconsin-Madison.
Export Outlook: A challenging year ahead
By Tom Quaife
Dairy exports will encounter headwinds this year, but officials remain cautiously optimistic. Speaking at a “Global Dairy Outlook” webinar on Dec. 4, U.S. Dairy Export Council Vice President of Communications Alan Levitt said he is optimistic that the record-high levels achieved last year can be maintained.