USDA April dairy outlook: Margins should improve

Lower average prices for concentrate feeds, along with a slightly higher expected all milk price, will improve dairy producer margins somewhat, according to USDA’s Livestock, Dairy & Poultry Outlook report, released April 16. However, the improvement is not expected to be large enough to be an incentive to boost herd size. Consequently, herd size is projected at 9.195 million head for 2013, unchanged from March’s forecast and below 2012’s average.

Output per cow for the year was lowered in April to 21,945 lbs., based on lower February milk per cow data. Like the World Ag Supply & Demand Estimates (WASDE) report, released April 10, USDA reduced projected 2013 milk production estimates by about 100 million lbs. from a month earlier. Based on forecast herd size and output per cow, production is projected at 201.8 billion lbs. for 2013. If realized, 2013 production would be up just 0.7% from 2012. 

Milk equivalent imports on both a fats and skims-solids basis were lowered in April’s forecast. Fats-basis imports are now placed at 3.9 billion lbs. for the year, while skims-solids imports are forecast at 5.3 billion lbs. Fats-basis imports were lowered based on lower expected imports of anhydrous products, and skims-solids basis imports were lowered based on lower expected imports of milk protein concentrates. 

Fats-basis exports are unchanged from the March forecast at 9.4 billion lbs. Skims-solids exports were unchanged at 34.4 billion lbs. for the year. The price differential between U.S. and world nonfat dry milk (NDM) prices will likely strengthen exports in the second half of the year. Both fats- and skim-solids export forecasts represent increases above 2012 totals.

Fats-basis ending stocks were raised to 11.4 billion pounds as butter stocks persisted at higher than expected quantities. Skims-solids ending stocks were trimmed in April to 11.5 billion lbs. as stronger expected second-half NDM exports and domestic demand are expected to tighten stocks by year-end.

Prices for cheese, butter, NDM and whey are all forecast higher in April as lower forecast milk production and strength in demand are firming prices. Cheese prices are forecast at $1.735-$1.785/lb. The butter price forecast was raised to $1.560-$1.640/lb. In light of the export forecast, NDM prices were boosted to $1.585-$1.625/lb. and whey prices were raised slightly to 60.5-63.5¢/lb. 

Higher dairy product prices provided a lift to projected 2013 milk prices in April’s forecast. Class IV milk is forecast at $18.10-$18.70/cwt., and Class III prices were increased to $17.85-$18.35/cwt. The all milk price forecast is $19.45-$19.95/cwt.


Quarterly milk price estimates and projections ($/cwt.)


    Class III Class III Class IV Class IV All milk
2013 Q1 17.44* 17.44* 17.71* 17.71* 19.50*
  Q2 18.60 17.60-18.00 19.15 18.05-18.55 19.00-19.40
  Q3 19.23 18.30-19.00 20.34 18.50-19.30 19.55-20.25
  Q4 18.70 18.10-19.10 19.82 18.15-19.25 19.70-20.70
  Annual 18.49 17.85-18.35 19.25 18.10-18.70 19.45-19.95
2014 Q1 17.60   18.55    
  Q2 17.17   15.70    
  Q3 16.48   15.89    
  Q4 16.28   16.08    
  Annual 16.89   16.56    

* Estimated average for quarter

CME averages as of close of trading on April 15, 2013

USDA averages from USDA monthly Livestock, Dairy & Poultry Outlook report, April 16, 2013.