According to the USDA's Livestock, Dairy and Poultry report, Feed prices are expected to be higher during 2012 than last year. The corn price is expected to average $5.90 to $6.50 per bushel for the 2011/12 crop year, an increase from the $5.18 average in 2010/11. Soybean meal prices are forecast higher than in February at $310 to $340 per ton, but lower than the $346 posted in 2010/11. The increase in the soybean meal price forecast this month is due to reduced supplies from South America. The higher feed prices expected this year will continue to pressure the milk-feed price ratio.

The preliminary February milk-feed price ratio was 1.58, well below 2.01 posted in February 2011. This producer profitability indicator is unlikely to improve as the effect of higher feed prices will be exacerbated by forecast lower milk and dairy product prices this year.

The February Milk Production report showed January milk production 3.4 percent above January 2011 as both milk cow numbers and output per cow were above expectations (USDA, National Agricultural Statistics Service). Prices for replacement heifers, which will enter the herd during 2012 and into mid-2013, were also above expectations, suggesting that there is demand for dairy replacements and further expansion.

Based on these facts, February’s forecast cow numbers were increased this month to 9.2 million head for the year and production per cow was raised to 21.7 million pounds. Most of the gain in cow numbers is expected to come in the first half of 2012. The relatively mild winter temperatures in most of the United States were ideal for milk production, boosting yield per cow in the first half of 2012. However, weaker producer returns are expected to lead to herd contraction and lower milk per cow in the second half of the year. Milk production is forecast at 199.7 billion pounds this year, an increase over 2011 and a slightly higher than February’s forecast.

Milk equivalent imports on a fats basis are forecast at 3.3 billion pounds and at 5.1 billion pounds on a skims-solids basis, both unchanged from February. Export forecasts likewise remain unchanged from February at 8.6 billion pounds and at 32.3 billion pounds on a fats and a skims-solids basis, respectively. Exports of most dairy products remain steady; however, butterfat movement is weak.

Fats basis ending stocks were raised this month and will end 2012 higher than in 2011. Currently large stocks of butter and higher milk production account for the forecast. Skims-solids stocks will end the year very close to 2011 ending stocks. Lower butter/powder values in the first half of 2012 could draw milk into cheese production, limiting the growth of nonfat dry milk (NDM) stocks and aiding the drawdown in fat basis stocks over the course of the year.

Prices for cheese, butter, NDM, and whey, were lowered this month. Expanded milk production, and slightly lower than earlier forecast economic growth is expected to pressure prices. This month, annual cheese prices are forecast at $1.600 to $1.660 a pound. Butter prices are projected at $1.510 to $1.600 a pound for the year. NDM prices are forecast at $1.345 to $1.395 for the year and whey prices, which had bucked the previous trend toward lower product prices, are now forecast lower this month at 57.0 to 60.0 cents a pound, but are still expected to finish the year above 2011 prices.

Lower dairy product prices resulted in lower milk prices for March than in February. The Class III price is projected at $16.35 to $16.95 per cwt. The Class IV price forecast is reduced to $15.85 to $16.55 per cwt, and all milk is lowered to $17.60 to $18.20 per cwt.