Milk prices may not fully offset high feed prices

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WASHINGTON, D.C. — Feed prices for dairy producers will likely remain high through the summer, but late-year declines are expected with bumper crops of corn and soybeans, according to Feb. 22 projections from the U.S. Department of Agriculture at the 2013 Agricultural Outlook Forum.

Even so, higher feed prices through most of 2013 will not be fully offset by an expected uptick in milk prices. USDA projections call for average net cash income per dairy operation to fall from $98,100 in 2012 to $83,900 in 2013, a crop of 14.5 percent.

At the Feb. 22 dairy outlook presentation, the USDA’s dairy outlook report was given by Jerry Cessna, senior agricultural economist for dairy programs at the USDA’s Agricultural Marketing Service. In the first three quarters of 2013, the USDA projects average corn prices of $6.75 to $7.65 per bushel, compared with $6.22 in 2011-12. However, prices in the last quarter of 2013 are projected to drop below the $4.80 per bushel price forecast for the entire3 2013-14 crop year, according to the USDA.

Meanwhile, the USDA projects soybean prices will average from $430 to $460 per ton in 2012-13, up from $394 the previous year. That will decline to average $300 per ton in the 2013-14 marketing year, with prices lower at the start of the marketing year.

Cow numbers are projected to fall by 0.7 percent in 2013, Cessna said in his presentation, in response to high feed prices, low numbers of replacement heifers and high slaughter numbers in recent months.

However, Cessna said daily output per cow is projected to grow at 1.3 percent. Combined, the dip in cow numbers and the modest rise in output will result in an 0.6 percent increase in daily milk production, he said.

High beginning stock levels may keep prices in check, but Cessna projects dairy product prices will be generally higher in 2013 compared with 2012.  Prices are projected higher for cheese, nonfat dry milk and whey. Butter prices may be in the same range as 2012, the USDA projects.

The all-milk price is expected to rise from $18.50 per cwt. in 2012 to an average of $18.90 to $19.60 in 2013, according to the agency’s projections.

With consumption and exports predicted to grow faster than consumption, the USDA estimates that year-over-year ending stocks will be 6.5 percent lower on a fat basis and 3.2 percent lower on a skim solids basis.

Scott Brown, agricultural economist with the University of Missouri, provided a look at dairy policy in his presentation. Brown said it is too early in the year to have a good sense of where dairy policy might settle on in 2013.

“I think there are a number of budgetary issues that must become clear before we can debate farm policy,” he said. With record high feed costs, producers are interested in ways to protect their margins rather than merely focusing on price, he said.

However, Brown said that a declining budget baseline for dairy programs will make any approach difficult, he said. The Congressional Budget Office in February put baseline spending on dairy programs from fiscal year 2014 to fiscal year 2023 at $28.4 million per year.  That’s just a fraction of seven years ago, he said.

“It is hard to write dairy policy that only spends $30 million annually that has much effect on the industry,” he said, noting dairy industry cash receipts in 2012 totalled about $37 billion.

He said trying to gauge the cost to the government of a new margin protection approach for dairy industry policy is not easy to measure, and the producer response is also a question.

 “The cost and effectiveness of these programs is one of my biggest concerns,” he said.

Anand Rao, general manager for technical services for Fronterra USA, said during his presentation that the dairy industry has seen more volatility and convergence in global dairy product pricing. A big increase in import demand from China has benefitted the U.S., New Zealand and other dairy exporters, he said.

Rao said the rise of emerging markets is driving strong global demand for dairy products. With demand for dairy protein increasing from aging populations in Europe, the U.S., Japan and China, Rao said the outlook is positive for continued export growth in the dairy sector.

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N Y  |  February, 27, 2013 at 10:19 AM

Now that's just wonderful . Another fine mess we are in , thanks to you Ollie . Now Stan , you know those grain farmers are making a killing in the market . We just need for them to produce their products cheaper , then we can make more money as dairymen . But Ollie , the grain farmers are making about 40% to 50% of parity . It's not their fault that you are not able to get more from the market for your milk . There you go again , sticking up for the grain farmers . I need to produce more according to my banker , so I can pay him back . He tells me I need to expand too as there will be a demand for more dairy products just as soon as the third world countries start making a little bit more money . Now Ollie, what makes you think your banker is so right about expanding production ? Has he been right in the past ? I sometimes wonder why all you dairymen don't just get organized and control your growth and set prices that will cover your cost and give you a profit ? Stan , you know it's never going to happen . Some of my friends , who want to expand are not of the mind to help their neighbors make advances and become profitable . They may want to expand more and buy his land . If he has signs of hope, them he may not want to sell. Well Ollie, It's that kind of logic that has gotten all you dairy farmers in a pickle . All you have to do is cut production and sell a few more cows to the meat packers . All I you talk about is , if all the others who I do business with would just take less , them I could make it . Why not worry about bringing your standard of living up rather than forcing every body else down to you level of non-profit . Work to advance all farmers and help bring prosperity back to rural areas .

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