USDA: Dairy’s long-term (steady, non-volatile) projections

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In preparation for its annual Agricultural Outlook Forum, Feb. 20-21, USDA issued its yearly long-term projections last week, looking out to 2023.

The 2014 report may need to be taken with an even bigger grain of salt as usual, since the projections were compiled before completion of the 2014 Farm Bill. Also, the projections don’t account for the unpredictable volatility we’ve seen in dairy and other agricultural commodities.

Looking specifically at dairy, USDA projects milk production will continue rising over the next decade, reaching 246 billion lbs. in 2023, a 22% increase over 2013.

Milk cow numbers are projected to rise through 2017, to 9.31 million head, as high milk prices and lower feed costs provide favorable returns to producers. In later years, feed costs begin to rise and milk cow numbers show year-to-year declines in 2018-23. There will be roughly the same number of cows in 2021 as there were in 2012.

U.S. milk output per cow is projected to increase through 2023, reflecting continued technological and genetic developments. The average cow will produce 26,825 lbs. of milk in 2023, a 27% increase from 2013.

Domestic commercial use of dairy products will increase faster than the growth in U.S. population over the next decade. The demand for cheese is expected to rise due to greater consumption of prepared foods and increased away-from-home eating. The slow decline in per capita consumption of fluid milk products is expected to continue.

The United States is expected to be well positioned to expand exports of dairy products. Commercial U.S. dairy exports are projected to increase steadily over the next decade, reaching record levels on both a fat and a skim-solids basis. Production increases in other major dairy exporting countries are expected to lag growth in global import demand. 

As they always do, the milk price projections exhibit no volatility. After declining in 2014-16, nominal farm-level milk prices are projected to gradually rise over the rest of the projection period, with increases less than the overall rate of inflation. Real price decreases largely reflect efficiency gains in production, which result from technological improvements and consolidation in the sector. Annual price projections sit in a range of $18.95/cwt. in 2016 to $20.45/cwt. in 2023.

Affecting cull cow prices, beef cattle prices are projected to rise until 2017, take a one-year dip, and then increase at less than the general inflation rate in the later years of the projections.

Looking at the potential feed cost side of the equation, moderate growth in demand for corn is projected over the next decade. Lower corn prices and increasing meat production underlie projected gains in feed and residual corn use. Also supporting gains in feed use of corn is a slowdown in the growth of ethanol production and resulting distillers grains. U.S. corn exports increase during the projection period, in response to strong global demand for feed grains to support growth in meat production.

Based on USDA projections, at least, the range of farm prices for corn will find a low of $3.30/bushel in 2015/16 and a high of $4.20/bushel in 2023.

U.S. soybean plantings remain near 78 million acres over most of the projection period, but growth in both domestic use and export demand lead to increases in prices. As increases in meat production resume and growth in distillers grains and canola meal slow, domestic demand for soybean meal is projected to grow in the coming decade.

Based on USDA projections, the range of farm prices for soybeans will find a low of $8.85/bushel in 2015/16 and a high of $10.15/bushel in 2023.

Market responses to high crop prices in recent years, both in the United States and in other countries, are projected to lower prices over the next couple of years. Nonetheless, U.S. prices for corn and soybeans are projected to remain historically high, above pre-2007 levels. The continuing influence of several long-term factors—including global growth in population and per capita income, a low-valued U.S. dollar, increasing costs for crude petroleum, and rising biofuel production—underlies these price projections.

Looking at the big picture, projected reductions in prices for most major crops over the next several years result in declines in export values and farm cash receipts through 2016. Export values and cash receipts then grow over the rest of the projection period as steady domestic and international economic growth, a weak U.S. dollar, and continuing production of biofuels support longer term demand for U.S. agricultural products. 

Farm production expenses remain relatively flat in the near term, as declining feed expenses offset gains in most other expenses. Expenses rise after 2015-2023, but less rapidly than the overall rate of inflation once effects of lower grain and oilseed prices on feed costs are completed.

While interest expenses and manufactured input costs rise faster than the general inflation rate during these years, expenses for farm-origin inputs are up less than the general inflation rate.

Production expenses for fuel and oil also rise faster than the general inflation rate after 2016, largely reflecting increases in crude oil prices.

Click here to find the full report


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