The January Cattle report showed a 1 percent higher inventory of dairy cows on farms than a year earlier. However, the number of heifers for milk cow replacement and the number of heifers expected to calve in 2012 were both reported 1 percent below a year earlier.

Although the cow inventory forecast for 2012 is only raised slightly to 9.19 million head, the January report points to higher forecast cow numbers early in the year, with a sharper fall off than projected in January expected later in 2012.

Although 2011/12 soybean meal prices are forecast below last year’s $290 to $320 a ton, corn prices in 2011/12 are projected to be higher than last year’s $5.80 to $6.60 per bushel. The continued outlook for relatively high feed prices and forecast lower milk prices in 2012compared with last year will weaken returns for dairy producers over the course of 2012, leading to herd reduction.

Milk per cow is forecast higher than in January at an average 21,645 pounds per cow. The higher than expected milk per cow observed in the fourth quarter of 2011 will likely continue through 2012. Further, the mild winter is expected to benefit milk production, especially in the first quarter. On balance, this forecast would lead to 199 billion pounds of milk production in 2012, higher than the January estimate and 1.4 percent above the 2011 total output.

Fat-basis imports remain unchanged from last month at 3.3 billion pounds and exports also were unchanged at 8.6 billion pounds. On the skims-solids supply and use table, there were no changes from January’s import forecast of 5.1 billion pounds.

Skims-solids exports were increased slightly to 32.3 billion pounds as skim milk powder exports were higher in the fourth quarter of 2011 and there appears to be little dropoff heading into 2012. U.S. prices and the exchange rate will likely keep U.S. dairy exports competitive with New Zealand and the European Union.

Domestic prices for the major dairy products were reduced in the February report, with the exception of whey. Cheese prices are forecast at $1.610 to $1.680 per pound; this represents a reduction from January’s estimate and is well below the $1.825 per pound price posted last year. The expected increase in milk production in 2012 contributes to the lower cheese price, especially in the first quarter. Similarly for butter, prices were projected lower at $1.570 to $1.670 per pound, representing a downward revision from January and a sharp drop from 2011’s average price of $1.950 a pound.

The same market fundamentals apply for both butter and cheese, with higher production overtaking demand. This situation could be ameliorated by the fourth quarter, firming prices if the forecast 2012 milk production growth rate slows from the robust increase forecast for the first quarter. Nonfat dry milk (NDM) prices were revised downward in February as well.

NDM is forecast at $1.360 to $1.420 per pound. The sharpest declines in cheese, butter and NDM prices will occur in the first quarter. Export demand should support some recovery in product prices as the year goes on, but prices for cheese, butter and NDM are not expected to recover to 2011 levels.

The whey price forecast was raised from January to 61.5 to 64.5 cents a pound and is well above the 2011 average price of 53.3 cents a pound. The pace of whey exports has kept prices moving upward for the last 3 years, a situation expected to continue in 2012. Milk prices were revised downward based on the price outlook for dairy products. The Class III price was revised to $16.70 to $17.40 per cwt, considerably below last year’s $18.37 per cwt average.

The Class IV price was lowered this month to $16.25 to $17.05 per cwt, also considerably below the 2011 average of $19.04 per cwt. The all milk price is forecast at $18.00 to $18.70 per cwt, down from the January forecast, and as with the Class III and Class IV prices, much lower than the $20.14 per cwt average posted in 2011.

Source: Livestock, Dairy and Poultry