USDA May dairy outlook
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Current year milk and dairy product prices continue a downward glide as milk production continues to expand, despite lower producer returns in the face of high feed prices, according to USDA’s latest dairy outlook report, released May 16. The report largely mirrors last week’s World Ag Supply & Demand Estimates report. Next year’s milk production increase is expected to be slight, as the cow herd contracts and demand becomes somewhat stronger, lifting prices.
Production for 2012 was raised this month to 201.9 billion pounds. The initial forecast for 2013 is for production to reach 202.6 billion lbs., based on higher output per cow. The total number of milk cows for 2012 was raised slightly from April, to 9.23 million head. The 2013 dairy herd is expected to decline to 9.17 million head, reflecting 2012’s high feed prices and lower milk prices. Milk per cow for 2012 was boosted to 21,880 lbs. from the April projection. Production per cow is forecast at 22,100 lbs. for 2013.
Milk-equivalent imports on a fats basis are forecast at 3.3 billion lbs. for both 2012 and 2013 and 5.4 and 5.2 billion lbs. for 2012 and 2013 respectively on a skims-solids basis. Milk-equivalent exports on a fats basis are projected at 8.5 billion lbs. in 2012, rising to 8.7 billion lbs. next year. Exports on a skim solids basis are estimated at 31.5 billion lbs. this year and 32.4 billion lbs. in 2013.
Higher than expected milk production and weaker-than-expected demand led to lowering of the 2012 prices for the major dairy products in May, except for whey. The cheese price was lowered to $1.555-$1.605/lb.; butter was reduced to $1.425-$1.505/lb., and the nonfat dry milk price was revised to $1.235-$1.275/lb. The whey price was increased to 56.0¢-59.0¢/lb. as it appears demand is stronger than expected earlier.
The 2013 cheese price is forecast at $1.600 to $1.700/lb.; butter at $1.465 to $1.595/lb.; and NDM at $1.320 to $1.390/lb. Whey prices are forecast at 55.5¢-58.5¢/lb., very near 2012 prices.
Milk prices for 2012 were revised downward based on lowered product prices, but remain more bullish than current CME futures prices. (See table for quarterly milk price forecasts from USDA and quarterly averages of CME futures contracts.) The Class III price is projected at $15.80-$16.30/cwt.; the Class IV price was lowered to $14.50-$15.10/cwt.; and all milk is projected at $16.90-$17.40/cwt.
In 2013, milk prices should recover. The Class III price is forecast at $16.20-$17.20/cwt.; the Class IV price is forecast to rebound to $15.40-$16.50/cwt.; and the all milk price is expected to climb to $17.25-$18.25/cwt.
Corn prices are moderating for both the current crop year and for 2012/13. The corn price is projected to be $5.95-$6.25 a bushel in 2011/12, a decline from April’s projected price and to slip to $4.20-$5.00 a bushel next year. Higher corn plantings and higher expected yield could lead to a record-high corn supply in 2012/13 despite tight carryin stocks. The recent Crop Progress report showed a crop well ahead of average development for this time of year. While this is no guarantee of above-average yields, it minimizes the risk of yield loss due to late planting.
Soybean meal prices continue to inch upward; this month’s forecast calls for soybean meal prices to average $360 a ton for the current crop year, up from April’s forecast. For 2012/13, prices are forecast at $335-$360 a ton.
The April Agricultural Prices reported the preliminary estimate of alfalfa hay prices at $207 per ton. Hay prices could move downward with the 2012/13 crop. The benchmark 16-percent protein dairy ration was calculated at $11.20 per cwt for January-March 2012. Given crop price forecasts, the ration value will likely head down later this year and could fall further in 2013. For dairy producers, the welcome relief from high feed prices will likely be countered by lower milk prices for the balance of
2012, with some recovery likely in 2013.
On balance, the milk-feed price ratio is not expected to signal expansion until later in 2013.
