Source: The following article was included in the February 2014 issue of the USDA's monthly "Livestock, Dairy and Poultry" report, available here.

The most recent USDA World Agricultural Supply and Demand Estimates report raised the 2013/14 season-average price of corn to $4.20-$4.80 per bushel.

Higher expected exports lie behind the price rise; global trade and strong export sales support increased U.S. corn exports. Similarly, a higher export forecast for soybean meal supports the advance in prices from January to $425-$465 per ton. The outlook for forages appears steady, as January preliminary alfalfa prices are reported in January Agricultural Prices at $185 a ton, down from $187 in December and well below the January 2013 price. For 2014 as a whole, feed prices should be lower than last year.

The February dairy cow forecast is raised fractionally from January to 9.255 million head. Sharply higher year-over-year springer prices, combined with flat heifer calf prices, suggest some short-term herd expansion—though there may be caution on the part of producers toward a longer term expansion. Expected feed and milk prices will push the calculated milk-feed price ratio to the highest in several years.

These factors combined support a modest expansion in the second half of 2014. Milk yield is unchanged from January at 22,230 pounds per cow. However, yearover- year, milk yield is expected to increase by 1.9 percent from 2013. On balance, year-over-year milk production is forecast up about 2 percent to 205.7 billion pounds for February.

Milk-equivalent imports for 2014 are unchanged from January on a both fats and skims-solids basis at 3.7 billion and 5.2 billion pounds, respectively. Fats basis exports were raised 300 million pounds from January to 11.5 billion pounds for February, largely on continued strong movement of cheese and butter.

In contrast, skims-solids exports were lowered 300 million pounds to 38.2 billion pounds on the basis of slower lactose exports. Overall, global demand for dairy products is expected to remain strong; however, increased production in competitor countries, most notably EU countries, could limit U.S. exports later in 2014. Much of the increased foreign production will be products that compete directly with U.S. products.

Fats-basis ending stocks are raised slightly for February to 11.9 billion pounds. Strong demand should tighten inventories early this year, while increased production, both foreign and domestic, will result in higher inventories by the end of 2014. Skims-solids ending stocks are unchanged from January as continued robust international demand for nonfat dry milk (NDM) and skim milk powder (SMP) will keep inventories in line despite higher production.

Yearly product prices for cheese, butter, and whey are projected slightly higher for February based on year-to-date price strength. However, higher milk production will likely lead to somewhat lower prices in the second half of 2014. The cheese price is forecast at $1.815-$1.885 per pound, up from last month.

Butter prices are projected to average $1.550-$1.650 per pound. Butter supplies are expected to remain relatively plentiful. Similar logic underlies the raise in whey prices to 56.0- 59.0 cents per pound. NDM prices were lowered this month to $1.785-$1.845 per pound. Although export demand for powders remains strong, increased world supplies will likely pressure prices.

The Class IV price is forecast at $19.80-$20.60 per cwt; a decrease from January based on lower forecast prices in the powder market. The Class III price is raised from last month’s forecast to $18.35-$19.05 per cwt as cheese and whey price forecasts are increased for February. The all milk price is forecast at $20.85-$21.55 per cwt, an increase from January.