Dairy incomes projected to drop after 2011 rebound

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Dairy producers will lose some of the gains they won in 2011 with a projected 27 percent drop in income this year, according to U.S. Department of Agriculture analysts.

With average net cash income per dairy farm expected to drop from $239,000 in 2011 to $175,500 in 2012, the glass is still half full, said Milton Madison, dairy market and policy analyst with the USDA, at the department’s Agricultural Outlook Forum on Friday.

“This forecast would still be the third-highest since 2007,” Madison said in a report that accompanied a panel session about the dairy industry outlook.

In general, Madison said the costs of inputs are rising and the price of milk is falling compared with 2011.

“We are looking at 2012 as a bit of a retrenchment year after a very good year in 2011,” Madison said.

The USDA forecasts corn prices will rise to $5.80 to $6.60 per bushel in the 2011-12 crop year, with soybean prices expected to fall slightly to $290 to $320 per ton in 2011-12. Lower feed prices during the second half of 2012 will bring some relief to producers, the USDA said.

Madison said milk prices are projected to fall during the first half of 2012. The all-milk average is expected to average from $18 to $18.70 per hundredweight, compared with $20.14 per hundredweight in 2011. The average price of cheese is projected to average $1.61 to $1.68 per pound in 2012, 10 percent below 2011. The price of butter is forecast at $1.57 to $1.67 per pound this year, down 17 percent from 2011.

Still, Madison said the decline in revenues won’t be as severe as in past downturns.

“I think we are going to avoid that big drop that happened in 2009,” Madison said.

Madison said average cow numbers in 2012 will be slightly lower than the 2011 number of 9.19 million head.

Mild weather and the added production from leap year day will help output per cow to rise by 1.4 percent in 2012, compared with a 0.9 percent gain for last year.

Milk production is forecast to rise to 199 billion pounds in 2012.

Domestic demand will improve in 2012, but not enough to keep up with production increases, Madison said.

Exports are pegged at $4.4 billion for 2012, down from $4.5 billion last year. Big Chinese imports of whole milk powder have helped support international dairy prices. U.S. milk equivalent exports are forecast at 8.62 billion pounds in 2012, below 2011 levels.

John Noble, president of Noblehurst Farms Inc., Linwood, N.Y., said dairies are under pressure. Feed costs used to represent 28 percent of costs, and now they account for 50 percent, he said. The U.S. had 105,000 dairy herds in 2000 compared with only 60,000 herds today, he said.

Noble said trends will continue toward more dairy ownership of cropland to control feed costs, with fewer farmers producing with more cows. Dairies will be interested in vertically integrating their business and some will explore offshore sourcing opportunities, he said.

“We need to invest for the long term but we need to be prepared for the short term,” Noble said.

The use of robotics in dairy production is perhaps 10 to 15 years away from practical use, Noble said. Dairy farmers must rely on immigrant labor now, he said.

“It would be impossible to milk cows in this country without immigrant labor,” Noble said.



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