April U.S. dairy outlook
By Dave Natzke
Editor’s note: USDA’s monthly Milk Production report will be released Thursday afternoon, April 19.
USDA’s monthly Livestock, Dairy & Poultry Outlook report (released April 18) echoes last week’s World Ag Supply & Demand Estimates (WASDE) report, raising both 2012 milk production and marketing estimates to more than 200 billion lbs., again pressuring 2012 milk and dairy product price projections lower.
Average U.S. cow numbers are estimated at 9.215 million head for 2012, up 21,000 from 2011. Due to a slightly more adverse feed outlook for producers, combined with higher cull cow prices and lower milk prices over the course of the year, is likely to lead to lower cow numbers by year-end. However, the decline is projected to be less than expected last month.
Milk per cow is estimated at 21,825 lbs., up 479 lbs. from 2011. Production per cow is likely to remain above trend in 2012 as a result of the mild winter and the heavy slaughter that has removed marginal producers from the herd.
Total 2012 milk production is now estimated at 201.1 billion lbs., up 1.4 billion lbs. from last month’s estimate, due to higher-than-expected cow numbers and more milk production per cow. Compared to last month’s estimates, the milk production forecast was raised for every quarter of 2012. If realized, 2012 production would be 2.5% more than 2011 actual production. Estimated 2012 milk marketings, at 200.2 billion lbs., were raised 1.5 billion lbs. from last month. If realized, 2012 marketings would be up 2.5% from 2011.
With higher forecast 2012 milk production and weaker-than-expected product demand, dairy product and milk price forecasts were lowered from a month ago (see table). For comparison, DairyBusiness Communications also calculates quarterly and annual average Class III and Class IV milk futures prices on the Chicago Mercantile Exchange.
Ample stocks of dairy products and higher milk production lead to a lower price forecast in April for all major dairy products. Prices forecast for cheese, butter and NDM are below both March forecasts and 2011 average prices. The cheese price is forecast at $1.59-$1.64/lb. Butter is projected at $1.49-$1.57/lb., and NDM prices are projected at $1.30-$1.34/lb. Whey prices, which have run counter to the downward price trend for other products, are now forecast lower this month, at 55¢-58¢/lb. While the April forecast whey price is lower than in March, it is still above the 2011 average price.
The Class III price was reduced to $16.10-$16.60/cwt., and the Class IV price was lowered to $15.35-$15.95/cwt. The all-milk price is now forecast at $17.25-$17.75/cwt.
Trade, stock estimates
Fats basis imports were unchanged from last month, at 3.3 billion lbs. Cheese imports were revised lower, but the decline was offset by forecast increases in butterfat, whole milk powder and ice cream. Imports on a skims-solids basis were increased to 5.4 billion lbs., up from 5.1 billion lbs. forecast in March. The increase is based on expected growth in casein imports.
World supplies of milk proteins are expected to be higher and prices lower this year. Fats-basis exports were reduced to 8.4 billion lbs. from 8.6 billion lbs. last month. The year-to-date totals suggest butter exports will be below earlier expectations. Exports of fluid milk and cream, largely to Mexico and Canada, will likely be lower than earlier expected. Exports on a skims-solids basis were raised to 32.8 billion lbs. from 32.3 billion lbs. last month.
Year-to-date exports to Mexico and Asian countries have been stronger than earlier expected. Despite the higher early totals, exports for the year are unlikely to match last year.
Commercial ending stocks are forecast at 11.8 billion lbs. on a fats basis and 12.0 billion lbs. on a skims-solids basis, both up from March’s projections. Larger than expected supplies of cheese and NDM were reported in storage in February, which – combined with the higher forecast milk production – is likely to lead to higher than previously forecast stocks.
Weakening beef prices, or maybe not?
The beef market is providing mixed messages for cull dairy cow prices, which have driven to record highs early in 2012.
Improving early-season pasture conditions and an early start to corn planting have improved the outlook for beef production costs, and high retail beef prices have met with consumer resistance. Drought conditions in the Southern Plains and Southwest appear to be moderating as La Niña transitions into a more normal weather pattern, and – along with expectations for more normal yields – prospects for pasture availability in 2012 are improving.
However, longer-term, there is anecdotal evidence that Southern and Southwestern cattle producers are hedging their bets by buying stockers rather than cows to graze this summer. This strategy could delay the rebuilding of national beef cow inventories. The heavy rate of cow slaughter observed during the first quarter of 2012 will also affect the calf crop in 2012, likely to be down slightly as a result, and – combined with the relatively low increase in heifers expected to calve in 2012 – could also be down slightly from the already low inventories. Further, a smaller calf crop in 2012 would likely result in fewer feeder cattle available for placement on feed in 2013 and potentially lower beef production in 2013 and early 2014. This will be exacerbated to the extent that producers keep heifers from the 2012 calf crop for herd replacements or herd rebuilding.
The direction Choice and Select cutout values will take in the near term is uncertain and will partially depend on the extent of the impact on the whole beef sector of current negative consumer responses to lean finely-textured beef (LFTB). According to industry and analysts’ estimates, LFTB contributed 3%-6% of total lean beef supplies. If producers of ground beef products move away from using LFTB, they will need to find alternative lean beef sources or other substitutes to replace it in final products. With cow inventories at low levels, cow slaughter – a primary source of lean beef for ground products – is expected to decline and likely lead to higher cow prices and prices for lean processing beef.
However, higher cow prices could provide incentive to slaughter cows rather than keeping them for
breeding, which will lead to a short-term increase in lean beef supplies at the expense of rebuilding the herd and increasing beef supplies in a longer 2-3-year time horizon.
If demand for lean processing beef strengthens, prices for imported beef – the primary alternative source for lean processing beef – may also increase because of general low worldwide supplies of beef available for export.
To see the full USDA reports: