DairyProfit Update for Dec. 17, 2012

2012 U.S. dairy cow slaughter on pace to hit 3 million head

While the drought is boosting normal seasonal beef cow slaughter rates in the final months of 2012, unfavorable economic conditions for dairy producers have led to much higher dairy cow slaughter rates than in 2011, according to USDA’s Dec. 17 Livestock, Dairy & Poultry Outlook report.

Through early December, 2012 annual U.S. dairy cow slaughter was on pace to hit 3 million head, the highest total in 17 years. USDA began differentiating dairy cow slaughter from total cow slaughter in 1986. Since 1986, dairy cow slaughter has topped 3.0 million only twice, in 1986, at 3.595 million (a year influenced by the federal whole herd buy-out program) and 1996, at 3.037 million.

Through Dec. 1, 2012, year-to-date U.S. dairy cows slaughtered under federal inspection had reached 2.847 million head, nearly 170,000 head more than the same period in 2011, and had already surpassed the annual total for any year between 2003-2010. Through October 2012, U.S. dairy cows slaughter as a percent of total cows was 48.6%. That compares to 43.4% of all cows in 2011 and 43.6% in 2010. If that pace continues, it would be the highest percentage since 2000.

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USDA dairy outlook: Little change

As in last week’s World Ag Supply & Demand Estimates report, the Dec. 17 USDA Livestock, Dairy & Poultry Outlook for 2012 and 2013 milk production are unchanged from November. A contraction in herd size is expected to continue in 2013, but the pace of contraction was moderated slightly.

Total milk production is projected at 199.7 billion lbs. in 2012, unchanged from last month’s projection. Milk production for 2013 remains forecast at 199.7 billion lbs., also unchanged from the November forecast.

The projected 2012 U.S. dairy herd is unchanged from last month, at 9.225 million cows. USDA predicts lower cow numbers for 2013, but raised the estimate slightly from last month, to 9.130 million cows.

The December Class III price forecast was lowered from November to $17.40-$17.50/cwt., but raised for 2013 to $18.00-$18.80 /cwt. based on higher whey prices. While USDA 2013 Class III price forecasts are in line with current CME futures prices, the CME is more bullish than USDA on 2013 Class IV prices. The all milk price is unchanged from November at $18.50-$18.60/cwt. For 2013, the all milk price is unchanged, but the range is narrowed 5¢ on each end to $19.15-$19.95 per cwt.

To see a table of quarterly USDA price projections and CME futures comparisons, click here.

EPA standards: Has the dust finally settled?

The U.S. Environmental Protection Agency (EPA) announced revisions to regulations regarding fine particles under the National Ambient Air Quality Standard (NAAQS). However, as it had promised, EPA retained existing standards for coarse particle pollution, to the relieve of some agricultural groups.

The PM standard, commonly known as the dust standard, remains one of the most important environmental issues facing cattle producers, according to National Cattlemen's Beef Association (NCBA) deputy environmental counsel Ashley McDonald. Under the Clean Air Act (CAA), EPA is required to review the dust standard every five years to evaluate its protection of public health.

McDonald said if the PM standard had been tightened, it would have been virtually impossible for current agricultural operations to demonstrate compliance, subjecting them to fines under the CAA of up to $37,500 per day.

“A stricter PM standard would have an impact that would cause most of cattle country, including the entire Midwest, West and Southwest, to be out of compliance or at the brink,” McDonald said. “For now, 15 mile–per-hour speed limits on dirt roads, paving dirt and gravel roads and a prohibition on harvesting or tilling during the day are not regulatory requirements in most states, but could easily become a reality if EPA continues to regulate farm dust.”

Good: Difficult to anticipate Dec. 1 corn stocks estimate

USDA's estimate of Dec. 1, 2012 inventories of corn, to be released on Jan. 11, 2013, will be one of the more important factors influencing the price of old crop corn in the first quarter of the new year, according to Darrel Good, University of Illinois ag economist. The estimate of soybean stocks may be somewhat less important because more is known about the level of consumption during the first quarter of the 2012-13 marketing year.

The magnitude of Dec. 1 corn stocks cannot be forecast with confidence, and expectations will likely be in a wide range. However, the potential for a smaller 2012 production estimate and a large level of implied feed and residual use point to relatively low inventories and the need to slow the pace of corn feeding.

MARKETS: Butter down; Class III futures inch upward

Today's market closing prices:

Butter: down 2.5¢, to $1.57/lb.

Cheddar blocks: unchanged at $1.7250/lb.

Cheddar barrels: up 0.5¢, to $1.63/lb.

Grade A nonfat dry milk: unchanged, at $1.5575/lb.

Extra Grade nonfat dry milk: unchanged, at $1.56/lb.

Class III milk: +2¢ to +12¢ through September 2013. Based on current CME closing prices, the 2012 average is $17.44/cwt.; the 2013 average is $18.51/cwt.; and the 2014 average is $16.23/cwt.

Corn futures lower, soybean, meal futures mixed

Corn: -5¢ to -7¢ through December 2013. The 2013 average is $6.88/bu.

Soybeans: -4¢ to +1¢ through November 2013. The 2013 average is $14.29/bu.

Soybean meal: -$2.30 to +$0.50/ton through December 2013. The 2013 average is $416.13/ton.