Expect Continued Strength in Dairy Exports, Producer Margins Next Year

Cropp and Stephenson: Even with increased milk production and $17 milk prices, 2014 may be a good year for U.S. dairies.

Lower feed costs and strong milk prices buoyed by record exports are improving margins for U.S. dairy producers, a scenario that should carry over into 2014, say dairy market analysts Mark Stephenson and Bob Cropp in their October 2013 Dairy Situation and Market Outlook podcast. 

Neither expects Class III prices to hit the $20 level, as they did this year. But the two economists with the University of Wisconsin-Madison do see milk prices at $17 per cwt. in the first quarter of 2014.

"It’s not going to be a bad year" for U.S. dairy producers in 2014, Cropp says.

In last week’s USDA milk production report, U.S. milk output increased only 1% in the U.S. That smaller-than-expected number surprised Cropp, who says some of USDA’s numbers "looked a little different that we would expect."

That report showed U.S. milk output in October totaled 14.8 billion pounds, with production per cow reaching 1,741 lb., up 12 lb. from September 2012.The number of milk cows on U.S. dairies in the 23 major states reached 8.51 million head, 33,000 head more than September 2012 but 19,000 less than August 2013. Last week’s report marked the first time since March that USDA released a full set of data, with cow numbers as well as milk-per-cow production estimates.

Looking to 2014, improved margins and plenty of replacement heifers will spur milk production. That increase in milk production "will have to have a home," says Stephenson.

That shouldn’t be a problem if overseas markets continue to consume U.S. butter, dry whey, cheese and powder as they’ve done this year. Calling this year’s dairy export levels "incredible," Stephenson says the record numbers are a "real indication of demand opportunities and our ability to fill some of that demand and increasingly companies becoming more comfortable supplying those overseas markets."