It was inevitable.
After a tough time in Class III futures trading the past couple of weeks, it was just a matter of time before the prognosticators began to ratchet down their estimates for 2012 milk prices.
Thursday morning, in its monthly World Agricultural Supply and Demand Estimates report, the U.S. Department of Agriculture revised its estimates downward.
The USDA now predicts that Class III prices will average $16.70 to $17.40 this year, down from the range of $17.10 to $17.90 that the agency had predicted in early January.
The all-milk price is now expected to average $18 to $18.70 this year rather than a range of $18.30 to $19.10 predicted last month.
The USDA explained its reasoning as follows: Milk production and cow numbers are expected to be higher than originally predicted, which will cause lower cheese and butter prices. The lower cheese price will result in a lower Class III price.
It should come as no surprise, given the pounding cheese and butter prices have taken on the Chicago Mercantile Exchange lately. The spot butter price has dropped 20 cents per pound in the past month. And, block cheese dropped from $1.60 per pound on Jan. 9 to $1.475 on Wednesday.
Greg Scheer, dairy analyst for Doane Advisory Services in St. Louis, offers these comments on today's report:
"USDA raised its milk production forecast in the February 2012 Supply/Demand report, reflecting a small increase in projected cow numbers and an increase in output per cow," he said. "Mild weather over much of the country has boosted milk yields so far in 2012. The increased production is expected to put further pressure on milk and dairy product prices in 2012 compared to the record levels in 2011. USDA’s mid-range all-milk price forecast fell to $18.35 per cwt compared to the $18.70 projection last month. The average all-milk price in 2011 was $20.14."