USDA outlook: Favorable price-cost ratio to fuel 2015 expansion

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Continued improvements in the relationship between milk prices and feed costs are expected to support expansion of the U.S. dairy herd in 2015, according to USDA’s Livestock, Dairy & Poultry Outlook report, released June 18.

June projected corn prices were lowered slightly from May to $4.45-$4.65/bushel for 2013/14, based on reported prices to date. The 2014/15 corn price is forecast below current year prices, but is unchanged from the May projection of $3.85-$4.55/bushel.

The soybean meal price for 2013/14 is estimated at $485/ton. The 2014/15 soybean meal price forecast is unchanged from May, but is expected to be sharply lower than this year at $355-$395/ton. The preliminary alfalfa price was reported in the May Agricultural Prices report at $224/ton, higher than April’s reported price and about the same as May a year ago.

The likely stronger milk-feed price ratios for both this year and next should presage expanded year-over-year production.

Last month’s forecast of herd expansion in the second half of the year was based on strong milk prices and moderating feed costs. The June forecast is unchanged from May, and cow numbers are placed at 9.255 million head for the current year. Cow numbers for 2015 are forecast up slightly from 2014 to 9.340 million head, also unchanged from the May forecast.

Current-year output per cow is lowered fractionally from May to 22,270 lbs. per cow, and is based on lower expected output per cow in the second quarter. Next year’s forecast of output per cow is unchanged from May, and is up nearly 2% from the 2014 projection.

The June milk production forecast for 2014 rounds to 206.1 billion lbs., unchanged from May. For 2015, milk production is unchanged from May at 212.1 billion lbs.

Fats basis 2014 milk equivalent imports were raised in June to 3.5 billion lbs., but are expected to slip to 3.4 billion lbs. in 2015. Skims-solids basis milk equivalent imports are raised this month to 5.6 billion lbs. for the current year and to 5.2 billion lbs. for 2015. The forecast increases from May are based on higher imports of food preparation items, whey products, and, to a lesser extent, casein and milk protein concentrates.

June forecast fats-basis exports for 2014 are increased this month from May to 13.4 billion lbs. and to 13 billion lbs. for 2015. Butter exports have retreated as U.S. prices have become less competitive on the global market. The butter decline was more than offset by continued strong cheese exports. The higher June forecasts are expected to carry over into 2015. However on a year-over-year basis, the 2015 forecast export decline is based on expected strong foreign competition.

Exports on a skims-solids basis are increased to 39.4 billion pounds for 2014 and are unchanged at 38.6 billion lbs. for next year. Higher skimmed milk powder, whey, and cheese are the basis of the higher skim-solids export number this year. Although the United States is expected to remain competitive in the global market, foreign competition will likely lower exports on a year-over-year basis in 2015.

Fats-basis ending stocks are lowered for 2014 based on lower than expected butter stocks, a likely result of lower butter production and strong domestic demand. Fats basis ending stocks are unchanged this month from May. Skims-solids ending stocks for both 2014 and 2015 are unchanged this month from May forecasts.

Although June price forecasts are higher than May for some dairy products, on a year-over-year basis prices will be lower in 2015 than in 2014. Greater milk production and slightly lower exports explain the forecast price scenario.

The 2014 cheese price range is raised this month to $2.015-$2.055/lb. based on robust year-to-date demand. Cheese price forecasts are unchanged for 2015 at $1.670-$1.770/lb. Forecast butter prices are raised to $1.870-$1.940/lb. for 2014, based on apparent demand strength and tight supplies, and to $1.640-$1.770/lb. next year. Current year whey prices are unchanged from May, at 63.0¢–65.0¢/lb., and 55.0¢-58.0¢/lb. for 2015.

Nonfat dry milk (NDM) prices are lowered slightly to $1.820-$1.860/lb., based on lower reported May prices. However as prices have appeared to rebound, the forecast for the balance of 2014 is unchanged. NDM prices for 2015 are unchanged from May at $1.605-$1.675/lb.

The Class IV price forecast is increased for both this year and next as higher butter prices more than offset lower NDM prices. The Class IV price is forecast at $21.45–$21.95/cwt. for this year, and $18.65-$19.75/cwt. for 2015.

The June Class III milk price forecast is raised to $20.80-$21.20/cwt. for the current year, and raised fractionally to $16.95-$17.95/cwt. for 2015.

The all milk price forecast is increased from May for both 2014 and 2015 to $22.90-$23.30/cwt. and $19.75-$20.75/cwt., respectively.

The Class III and Class IV quarterly projections are compared with CME closing prices for June 18 (see table).

 

Milk price averages & forecasts, $/cwt., June 18, 2014

 

 

All milk

Class III

Class III

Class IV

Class IV

 

USDA1

CME2

USDA1

CME2

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

20.05

 

17.99

 

19.05

2014

 

 

 

 

 

    Q1

24.53

22.61

22.61

23.10

23.10

    Q2

24.40-24.60

22.74

22.65-22.85

22.96

22.95-23.25

    Q3

21.95-22.45

21.42

19.65-20.15

22.43

20.80-21.40

    Q4

20.85-21.65

20.16

18.40-19.20

20.83

19.05-19.95

Year*

22.90-23.30

21.73

20.80-21.20

22.34

21.45-21.95

2015

 

 

 

 

 

    Q1

20.50-21.50

18.59

16.45-17.45

19.25

18.05-19.15

    Q2

 

18.37

 

17.69

 

    Q3

 

18.15

 

16.62

 

    Q4

 

17.98

 

16.80

 

Year*

19.75-20.75

18.27

16.95-17.95

17.59

18.65-19.75

1/ USDA prices and forecasts from Livestock, Dairy & Poultry

Outlook report (www.ers.usda.gov), issued June 18, 2014.

 

2/ Simple average of Chicago Mercantile Exchange

 

 futures prices at close of trading on June 18, 2014.

 

* Average may include actual federal milk marketing

 

order Class III and Class IV prices for affected months.

 



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