She said the U.S. dairy herd could shrink by as much as 2 percent by January 2013, compared with a year earlier.
South Dakota dairy farmer James Neugebauer, with a herd of about 170 dairy cows and heifers, said he began hauling some of his animals to market a couple weeks ago as the hottest July since the 1930s burned his crop fields to a crisp.
"There were super long lines. The sale started two hours early and they had record amount of cattle," said Neugebauer. "Those that aren't making us any money are getting out of here. We can't afford to feed them."
FROM BAD TO WORSE
During June, dairy farmers lost about 25 cents on every gallon they produced, said Tom Gallagher, chief executive for Dairy Management Inc, a trade group.
The outlook for feed costs is sure to get worse before it gets any better.
USDA on Friday cut its U.S. corn crop estimate to 10.8 billion bushels - down 4 billion from its first forecast. USDA also slashed it soybean crop estimate, now expected to be a nine-year low.
After the data was released, corn prices set a new record high at $8.49 a bushel at the Chicago Board of Trade and soybeans look set to follow suit this month.
Milk futures traded steady to weaker.
Even with feed costs soaring, USDA did not project a large jump in milk prices for the next year. Average price for 2012 was raised to $17.65 per hundred pounds (cwt), from $17.20 seen in July. For 2013, USDA projected the average price to rise to $18.30.
Michael Hutjens, dairy specialist at the University of Illinois, said milk consumers were likely to absorb the initial rise well.
"Milk was $16 per cwt in the spring. It looks like it could rise $3-4 by fall. Since each gallon of milk weighs about 8 lbs that comes to 35 cents a gallon," he said. "If the price of a gallon of milk goes up 35 cents in August, no big surprise at this point."
The outlook for a mild rise in price is tied to the outlook for only the mild cut in milk output. USDA cut its 2012 estimate by 1.6 billion lbs to 200 billion lbs - less than 1 percent. For 2013, output was cut only 1.3 percent from earlier projections. The reason? The dominance of large farms will grow.
Chris Hurt, agricultural economist at Purdue University, said that for nearly 20 years the U.S. dairy industry has been transitioning to larger dairies of 1,000 head or more from smaller family farm dairies that might milk 50 to 200 cows.
"The families that are left are very strong financially, so it's not easy to displace them. If they want to milk cows, you're not likely going to be able to discourage them easily," Hurt said. "On the other hand, you get the dairies with 1,000, 2,000, 3,000, 4,000 cows and they financially with their lender are absolutely entrenched. So they cannot just get out of this business next year," he said. "Everybody looks at each other and says you get out."