USDA dairy outlook: Expansion anticipated, but prices will be up

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Cow numbers, milk per cow and milk production forecasts are unchanged in USDA’s March Livestock, Dairy & Poultry Outlook report, issued March 14. The milk-feed price ratio supports expansion; however, adverse weather and poor forage quality will limit output per cow in the near term. Herd expansion is likely later this year. Milk and dairy product price forecasts are raised this month on strong demand, both foreign and domestic.

Milk per cow is also unchanged from the February forecast of 22,230 lbs. per cow. Growth in output per cow was below the 5-year average in January. It is likely that the colder-than-normal winter in the Upper Midwest, combined with the apparent variable forage quality of last year’s hay crop, contributed to lower than expected output per cow. In contrast and despite drought conditions, milk per cow increased in California and underpinned January’s nearly 5% year-over-year rise in milk output in that state. A return to more normal forage quality this spring in most of the United States will likely boost milk per cow in the second quarter. The milk production forecast is unchanged from February at 205.7 billion lbs. for the year.

Dairy cow culling remains strong, but prices for replacement heifers and dairy calves are higher than last year, suggesting that herd expansion could be in the offing.

Corn prices are unchanged from February, but the price range was narrowed in this month’s World Agricultural Supply and Demand Estimates report to $4.25-$4.75/bushel despite slightly higher projected corn exports. Soybean meal prices are increased to $450-$490/ton this month as a reduced soybean meal crush lowered projected meal production. The preliminary February alfalfa price is reported in the February Agricultural Prices at $188 per ton, up from January but well below a year ago. These projected feed prices will likely have little impact on the strongly expansionary milk-feed price ratio, reported at 2.55 in the Agricultural Prices report. Much of the strong milk-feed price ratio can be attributed to record high milk prices.

Commercial milk equivalent exports are raised this month to 12.4 billion lbs. on a fats basis based on strong year-to-date movement of cheese to Mexico and South Korea. In addition, butter exports to North Africa and Middle East countries are stronger than earlier forecast, helping lift export forecasts. Exports on a skims solids basis are unchanged from last month’s forecast at 38.2 billion pounds as increased lactose and cheese sales are offset by slightly lowered forecasts of skim milk powder and whey exports. Imports on both a fats and skims-solids basis are unchanged from February to 3.7 billion and 5.3 billion lbs., respectively. Ending stocks on a fats basis are lowered on stronger foreign and domestic demand for cheese and butter. Ending stocks on a skims-solids basis are reduced slightly this month from February.

Dairy product prices, and consequently milk prices, are expected to remain high for the remainder of 2014. Strong demand, both foreign and domestic, will support record and near-record prices despite increased competitor supplies. The March cheese price forecast is substantially higher than February projections at $1.860-$1.920/lb. Similarly, butter prices are raised to $1.605-$1.695/lb. in this month’s forecast. Nonfat dry milk price forecasts are also sharply higher than February at $1.825-$1.875/lb.. The whey price forecast is also raised, but not as dramatically, to 58.0$-61.0¢/lb.

Higher prices for dairy products result in higher class and all milk prices (see table). The Class IV price is forecast at $20.35-$21.05/cwt. and is higher than the forecast Class III price of $18.95-$19.55/cwt. The all milk price forecast is increased to $21.40-22.00/cwt. for March.

For the most part, current Chicago Mercantile Exchange (CME) futures prices are slightly more bullish than the USDA forecast for both Class III and Class IV.

 

Milk price averages & forecasts, $/cwt., March 14, 2014

 

 

All milk

Class III

 

Class IV

 

 

USDA/1

CME/2

USDA/1

CME/2

USDA1

2009

12.83

 

11.36

 

10.89

2010

16.26

 

14.41

 

15.09

2011

20.14

 

18.37

 

19.04

2012

18.53

 

17.44

 

16.01

2013

 

 

 

 

 

  Q1

19.50

 

17.44

 

17.71

  Q2

19.57

 

18.04

 

18.62

  Q3

19.53

 

17.81

 

19.13

  Q4

21.43

 

18.67

 

20.74

Year

20.01

 

17.99

 

19.05

 

 

 

 

 

 

2014

 

 

 

 

 

  Q1

24.15-24.35

22.60

22.20-22.40

23.12

22.80-23.10

  Q2

22.20-22.70

21.13

19.70-20.20

22.37

21.20-21.80

  Q3

20.00-20.80

19.79

17.55-18.35

20.75

19.35-20.25

  Q4

19.20-20.20

18.86

16.30-17.30

19.69

18.05-19.15

Year*

21.40-22.00

20.60

18.95-19.55

21.48

20.35-21.05

 

 

 

 

 

 

1/ USDA prices and forecasts from Livestock, Dairy & Poultry report (www.ers.usda.gov), issued March 14, 2014.

2/ Simple average of Chicago Mercantile Exchange futures prices at close of trading on March 14, 2014.

* Average may include actual federal milk marketing order Class III and Class IV prices for affected months.

 



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