Milk prices face continued downward pressure in the second quarter of 2015 before showing improvement in the latter half of the year, according to USDA’s Livestock, Dairy & Poultry Outlook report, released March 16.

Milk production for 2015 is forecast at 211.1 billion lbs., 2.5% higher than 2014’s 206.0 billion lbs., but 0.4 billion lbs. less than forecast last month.

Cow numbers are expected to grow slowly, averaging 9.325 million for the year, or about 69,000 more than 2014.

Annual milk output per cow is forecast to average 22,640 lbs. in 2015, up about 380 lbs. from last year.

 

Recent developments

In January, U.S. milk production was 17.6 billion lbs., 2.1% higher than in January 2014. This growth was substantially lower than the December year-over-year growth rate of 3.4%, and much lower than the peak growth rate of 4.3% in September. Slower milk production growth was the result of slower year-over-year growth in output per cow, which fell from 2.3% in December to 1.0% in January. The year-over-year growth rate in milk cow numbers was 1.0% in both December and January.

Contributing factors for lower yields include declining milk prices relative to feed prices and the on-going drought in California and other western areas of the country. Although feed prices have generally declined since the second quarter of 2014, milk prices have declined proportionally more since September, resulting in a decrease in the milk-feed ratio from 2.97 in September to 2.09 in January. As the drought in western areas persisted, California milk production fell in January by 2.6% from the January 2014 level, and New Mexico milk production fell by 1.9%. Even with USDA’s assumption of a return of normal weather, low snowpack levels from the Cascades southward into the Sierra Nevada are a concern for water supplies in California and other western areas in coming months.

U.S. exports fell substantially in January for a wide range of dairy products, including whey products, cheese, and butterfat products. Nonfat dry milk (NDM) exports increased from December to January; however, this was after a significant reduction last month. The labor dispute involving West Coast ports reportedly had an impact, although the extent is unclear. The dispute has been resolved at this point, and Dairy Market News reports some manufacturers are resuming the use of West Coast ports for exports to Asian markets. In addition, a stronger U.S. dollar is likely making U.S. goods less competitive in world markets.

Price directions of major dairy commodities, as reported in the USDA National Dairy Products Sales Report, were mixed during February. From the week ending January 31 to the week ending February 28, prices of butter and NDM increased from $1.564 to $1.707 and $0.971 to $1.058/lb., respectively. Cheddar cheese prices were relatively stable, with 40-lb. blocks decreasing from $1.558 to $1.553/lb. and 500-lb. barrels (adjusted to 38% moisture) increasing from $1.512 to $1.526/lb. The dry whey price fell from 57.9¢ to 48.8¢/lb.

 

Dairy forecasts for 2015

Feed price forecasts remain conducive to expansion of the milk supply, with the corn price forecast for 2014/15 at $3.50-$3.90 per bushel and the soybean meal price forecast at $350-$390 per short ton. With January’s deceleration in the growth rate of milk per cow and the lingering effects of the drought in California and other western areas, the 2015 milk per cow forecast has been reduced to 22,640 lbs. per year, 50 lbs. less than forecast last month. Given the January increase in milk cow numbers, the 2015 milk cow forecast is increased in the first half of the year, resulting in an annual forecast of 9,325 thousand head, 5 thousand more than forecast last month. Milk production for 2015 is forecast at 211.1 billion lbs., 2.5% higher than the 2014 level of 206.0 billion lbs., but 0.4 billion lbs. less than forecast last month.

Given the substantial fall in January exports of dairy products and expectations of strong competition, commercial exports have been reduced from last month’s forecast to 10.8 billion lbs. on a milk-fat milk-equivalent basis (0.3 billion lbs. less) and 37.3 billion lbs. on a skim-solids milk-equivalent basis (0.7 billion lbs. less). With Russia’s ban on dairy products from certain countries scheduled to end in August, exports in the second half of the year are expected to exceed those of the first half.

Strength in domestic demand is expected to support increased use of dairy products. On a milk-fat basis, domestic commercial disappearance is forecast at 203.1 billion lbs., 3.1% higher than the 2014 level. On a skim-solids basis, domestic commercial disappearance is forecast at 178.4 billion lbs., 4.9% higher than the 2014 level.

With a lower milk production forecast, stronger expected domestic use, and price increases that occurred for butter and NDM in February, the 2015 forecast prices for butter and NDM have been increased. However, the price forecasts have been tempered by expected export reductions. The 2015 butter price is forecast at $1.670 -$1.760/lb., and the NDM price is forecast at $1.205-$1.255/lb. Although the first-quarter cheese price forecast has been raised slightly due to recent price data, the 2015 annual forecast range is unchanged at the midpoint but narrowed to $1.600-$1.660/lb. With substantially lower exports of whey products in January and falling dry whey prices observed in February, the dry whey price forecast for 2015 is lowered to 49.0-52.0¢/lb.

With the lower whey price forecast for 2015, the Class III milk price forecast has been lowered to $15.95-$16.55/cwt. With higher forecasts for butter and NDM prices, the Class IV milk price forecast has been raised to $15.30-$16.00/cwt. The reduction in the Class III forecast more than offsets the increase in the Class IV price forecast, resulting in a 2015 all-milk price forecast of $17.05-$17.65/cwt, a decrease from last month’s forecast of $17.40-$18.10/cwt.

The Class III and Class IV quarterly projections are compared with Chicago Mercantile Exchange (CME0 closing prices for March 16 (see table). USDA’s price forecasts are more bullish than latest CME Class III/IV futures prices.

 

Milk price averages & forecasts, $/cwt., March 16, 2015

 

All milk

Class III

Class III

Class IV

Class IV

 

USDA/1

CME/2

USDA/1

CME/2

USDA/1

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

23.98

 

22.34

 

22.09

 

 

 

 

 

 

2015

 

 

 

 

 

    Q1

16.90**

15.71*

15.65**

13.74*

13.75**

    Q2

16.25**

15.29

15.55**

14.49

14.80**

    Q3

17.45**

16.66

16.50**

15.70

16.45**

    Q4*

18.80**

17.20

17.30**

16.74

17.60**

Year*

17.35**

16.22

16.25**

15.17

15.65**

1/ USDA prices and forecasts from Livestock, Dairy & Poultry Outlook report (www.ers.usda.gov), issued March 16, 2015.    

2/ Simple average of Chicago Mercantile Exchange  futures prices at close of trading on March 16, 2015.   

* Average may include actual federal milk marketing order Class III and Class IV prices for affected months.    

** Represents mid-point of USDA price forecast range

 

 

Beef outlook

The national average price for cutter cows is projected in peak in the Q2 of 2015, in a range of $109-$117/cwt., before tailing off slightly during the second half of the year, with an annual average of $104-$114/cwt.

Second-half 2015 beef production is forecast to be near 2014 production for the same period because of longer feeding times for steers and heifers, heavier dressed weights for all cattle, and more steers and dairy cows in the slaughter mix.

Thus far in 2015, commercial cow slaughter appears to be largely of dairy cows, which—due to their larger size — has resulted in higher average dressed weights. However, commercial beef cow slaughter was down by 24%, leaving total January commercial cow slaughter down by 11% year over year, but indicative of efforts to rebuild the beef-cow herd.

January 2015 monthly commercial dairy cow slaughter was up 2% year over year. Weekly federally inspected cow slaughter indicates a continuing pattern of relatively high dairy cow slaughter, with average dressed weights for all cows reaching a weekly record high of 663 lbs. per carcass.