U.S. dairy producers will see the all-milk price peak well above $20.00/cwt. in 2014 before dipping back to $19.00/cwt in 2015, according to the US Baseline Briefing Book released by the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri. Prices will then settle in a range of $17.50-$18.25/cwt. through 2023.

FAPRI’s projections were prepared based on market information available in January of 2014, and incorporates many provisions of the 2014 Farm Bill, including the Dairy Margin Protection Program.

The Class III price is projected to average $17.87/cwt. this year, declining to $15.24/cwt. by 2023, while the Class IV price is projected to average $19.49/cwt. in 2014, then averaging under $16.00/cwt. through 2023.

Combined with declining feed costs, profit margins for most dairy producers will be strong in 2014. Margins will average $9.82/cwt. in 2014; $9.72/cwt. in 2015; and $9.40/cwt. in 2016. Thereafter, margins dip below $9.00/cwt. in 2018, but remain above $8:50/cwt. for the duration of the period.

Those margins encourage milk production, FAPRI said. Milk production is projected to increase to 206.1 billion lbs. in 2014, up 4.9 billion lbs. from 2013. By 2023, U.S. milk production is projected to reach 235 billion lbs.

The FAPRI report projects dairy cow numbers for the Top 10 dairy states, as well as total U.S. numbers. California’s dairy herd is projected to grow from 1.782 million head this year to 1.797 million head by 2016, before slowly declining to 1.78 million head by 2023. Wisconsin’s dairy herd is projected to grow steadily, from 1.28 million head in 2014 to 1.343 million head in 2023.

Prices for most crops are likely to remain below recent peaks. After peaking at $6.89/bushel for the drought-reduced crop harvested in 2012, projected corn prices for 2014-2018 average $4.08/bushel. Soybean prices decline from $14.40/bushel in 2012/13 to $9.76/bushel for 2014-2018.

The outlook for hay markets is more fragmented, so although prices may fall from the very high levels caused by the 2012 drought, national average prices may not reflect local conditions. If production and stocks rebuild as projected, national average hay prices could drop to around $140/ton beginning in 2014/15. Local supplies could still be very tight in parts of the country affected by drought.

International dairy product prices are near record highs at the beginning of 2014, and the U.S. will  export large quantities of milk powders into world markets at these price levels, FAPRI said. Cheese and butter exports benefit to a lesser extent.  The strong international market prices are due in part to supply factors in major exporting nations, which are likely temporary. However, strong demand, particularly for milk powder in China, may be a longer lasting market phenomenon.

Cheese and nonfat dry milk prices are expected to average near $1.80/lb. this year. Cheese prices (40-lb. cheddar blocks at the CME cash market) are then projected to slowly decline to $1.58/lb. by 2012, while nonfat dry milk prices are projected to drop to $1.55 per pound next year and then average between $1.40 and $1.48/lb. from 2016 through 2023. Butter prices are projected to average $1.48/lb. in 2014 and 2015 and then fall to $1.25/lb. by 2023.

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