Strong demand keeps dairy production and milk prices high

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High feed prices will continue to affect the livestock sector, and dairy in particular, for the balance of 2011 and into 2012. The season-average corn price is forecast at $5.20 to $5.50 a bushel for 2010/2011 and $6.00 to $7.00 a bushel in 2011/12. This forecast is an increase from last month’s projections. Wetness has delayed planting in major parts of the United States and may ultimately curtail planted acreage from earlier indicated intentions. Soybean meal price forecasts were also raised this month to $350 a ton for 2010/11 and to $375 to $405 a ton in 2011/12. Hay prices are up sharply and reflect concerns about supplies in the face of disappointing weather patterns in many parts of the country. The price of other feedstuffs may affect hay prices more this year than in the recent past.

The feed price outlook is expected to impact dairy herd size both this year and next. Although cow numbers are projected to rise in 2011, the year-over-year rise of 0.7 percent to 9.18 million head is small and follows herd reductions in 2009 and 2010. In 2012, herd size is forecast to dip fractionally to 9.16 million head as higher feed prices impact producer returns. Milk yield per cow is expected to climb to 21,305 pounds in 2011 and is the smallest year-over-year increase in a number of years. Next year, yield per cow is forecast at 21,685 pounds, about the same rate as 2011 on a per day basis. High feed prices will act to limit productivity gains, while herd freshening, which likely has been underway for the last year or so, will ultimately increase output per cow. Milk production is projected at 195.5 billion pounds this year, and--despite an overall decline in herd size--will climb to 198.5 billion pounds in 2012, based on the expected increase in output per cow and the added leap-year milking day.

Dairy imports are forecast at 3.4 billion pounds, milk equivalent fats basis, in 2011. This forecast is a slight upward revision from last month, but continues the longterm downward trend that has been underway since mid-decade. The upward revision is based on higher expected imports of cheese and milk proteins. Milk equivalent imports on a skims-solids basis are projected at 5.0 billion pounds, also exceeding 2010 totals. For 2012, milk equivalent imports are forecast at 3.2 billion pounds on a fats basis; this represents a slight upward adjustment from last month’s forecast, but still below 2011 forecasts. Imports on a skims-solids basis are expected to fall to 4.5 billion pounds for the year.

Milk equivalent exports continue to show resiliency and are expected to total 8.1 billion pounds on a fats basis for the current year, a slight upward revision from last month, although still below 2010’s totals. On a skims-solids basis, exports are projected at 32.0 billion pounds, revised up slightly from last month and maintaining 2010 export levels. Next year, exports are forecast to climb to 8.7 billion pounds and 32.3 billion pounds on a fats and skims-solids basis, respectively. A weak dollar and continued robust global dairy demand, especially for cheese, underpin the forecasts. U.S. prices are expected to remain below world prices, a favorable situation for exports.

Domestic commercial use is forecast to rise both this year and next on both a fats and skims-solids basis. First-quarter 2011 commercial disappearance for the major dairy products showed increases from first-quarter 2010 disappearance. Continued —albeit slow—economic growth will likely uphold the advance in domestic commercial use. Domestic commercial use is forecast to total 189.6 billion pounds this year and 191.9 billion pounds next year, fats basis, and 167.8 billion pounds in 2011, rising to 170.0 billion pounds next year on a skims-solids basis.

Product price projections were increased from May. Cheese prices were increased based on continued strong domestic and export demand and are forecast at $1.755 to $1.795 a pound in 2011 and $1.660 to $1.760 a pound in 2012. Butter prices are projected at $1.915 to $1.985 a pound this year and $1.610 to $1.740 next year. Higher butter production this year relative to last has not translated into higher butter stocks at a time when inventories have historically increased. The tight stock situation could support continued high butter prices for the remainder of the year. The nonfat dry milk (NDM) price is expected to be $1.505 to $1.545 a pound in 2011 and $1.375 to $1.445 next year. NDM exports continue apace, supporting the high price. Exports are also contributing to stronger prices for whey, which is forecast at 46.5 to 48.5 cents a pound this year and 41.0 to 44.0 cents a pound next year.

Continued strong product prices underpin the higher expected milk prices both this year and next. The Class IV price is projected at $18.95 to $19.45 per cwt and $16.50 to $17.60 per cwt in 2011 and 2012, respectively. Similarly, the Class III price is forecast at $17.40 to $17.80 this year and $16.00 to $17.00 per cwt in 2012. The all milk price forecast is $19.65 to $20.05 per cwt in 2011 and $17.75 to $18.75 cwt in 2012.



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