But, this could be on the high side. Rather than expanding cow numbers, some producers are using improved margins to pay down debt accumulated during the severely depressed milk prices experienced in 2009 and very high feed prices the fall of 2012 and winter of 2013. And, of course, how crops turn out this year and resulting feed costs will be an important factor in how producers expand production later this year.
A slowdown in exports could also soften prices. With milk production much improved in New Zealand and the European Union-28 countries, more dairy products will be available for exports. Prices of butter, cheese, skim milk powder, whole milk powder and milk protein concentrates have already softened considerably in recent international Global Dairy Trades. This decline is lessening the competitive price advantage U.S. has been experiencing on the international market. Yet, with the world demand expected to remain strong and world stocks still at low levels U.S. exports for the year could still total 14% to 15% of U.S. milk production. USDA is still forecasting exports on a milkfat basis to actually be 2.4% higher than a year ago, with continued good cheese and butter exports, and exports on a skim-solids basis to be down just 2.3%.
Dairy futures remain quite optimistic. Class III futures don’t fall below $20/cwt. until July, and below $19/cwt. until October, ending in December at $18.30/cwt. This compares to an average Class III price for last year of $17.99/cwt.
Class IV futures don’t fall below $20/cwt. until August, and remain at $19/cwt. plus for the remainder of the year, ending at $19.12/cwt. for December. The Class IV price averaged $19.05/cwt. for all of last year.
If USDA’s increase in milk production comes to bear and exports soften, these prices will be a little optimistic for later in the year. Yet prices substantially lower than current Class III futures are not anticipated. But, we know prices can change rather quickly.
USDA’s March milk production report shows a continued modest increase in milk production over a year ago. The U.S. estimate increased 0.9%, putting production for the first three months 1.0% higher than a year ago. (Due to sequestration) USDA was not reporting cow numbers or milk per cow a year ago, so it is not known how much of the change in milk production was due to changes in cow numbers or milk per cow. U.S. cow numbers started to increase last December, and were 3,000 head higher in March than February, putting the increase since last November at 20,000. Considering March 2013 U.S. milk production was 0.2% lower than March 2012, the 0.9% increase this March is not a strong increase in milk production.