WASDE: 2012 dairy price outlook dimmer; better conditions in 2013

USDA’s World Ag Supply & Demand Estimates (WASDE) report, released May 10, painted a gloomier dairy picture for 2012, with a slight improvement in 2013. 

Forecast milk production in 2012 is raised from last month, primarily reflecting a slower decline in cow numbers and slightly faster growth in milk per cow. Total 2012 milk production is estimated at 201.9 billion lbs., up 800 million lbs. from last month’s estimate. If realized, 2012 production would be up 2.9% from 2011. Estimated 2012 milk marketings, at 200.9 billion lbs., were raised 700 million lbs. from last month, and would also be up 2.9% from 2011.

For 2012, cheese, butter and nonfat dry milk (NDM) prices were reduced (see table, below) from last month’s forecast, due to weaker-than-expected demand. Whey demand has been stronger than expected, and the price forecast was raised slightly from last month. 2012 milk class price forecasts were reduced, with the 2012 all milk price now forecast to average $16.90-$17.40/cwt.

Total 2013 milk production is estimated at 202.6 billion lbs., with marketings estimated at 201.6 billion lbs. If realized, 2013 production and marketings would be up just 0.3% from 2012. High feed prices and weakening milk prices during 2012 are expected to pressure producer returns, leading to declines in 2013 cow numbers. However, improvements in returns during 2013 will moderate the rate of decline. Milk per cow is expected to continue to grow, supporting increased milk production. 

Commercial exports are forecast to increase as the global economy improves and milk production increases in 2013. Imports will be slightly lower as domestic supplies increase. With improving demand and only modest increases in production, cheese, butter, and nonfat dry milk (NDM) prices are forecast higher in 2013. Whey prices will average near 2012 levels. Both Class III and Class IV prices are forecast higher, and the all milk price is forecast at $17.25-$18.25/cwt. for 2013.

USDA’s outlook is more bullish than current closing Class III futures prices on the Chicago Mercantile Exchange. Based on closing prices on May 9, the 2012 average of monthly contracts (including actual Class III prices for January-April) is $15.40/cwt.; 2013 average is $15.76/cwt. 

  Dairy price forecasts 

                                             Actual                                  Forecast

Product                 2009        2010       2011            2012                2013  

Class III ($/cwt.)    11.36       14.41      18.37      15.80-16.30     16.20-17.20

Class IV ($/cwt.)    10.89      15.09       19.04       14.50-15.10     15.40-16.50

All milk ($/cwt.)     12.83      16.26       20.14       16.90-17.40     17.25-18.25

Cheese ($/lb.)      1.2963    1.5226     1.8246      1.555-1.605      1.600-1.700

Butter ($/lb.)        1.2094    1.7020     1.9498      1.425-1.505     1.465-1.595

NFDM ($/lb.)        0.9222    1.1687     1.5058       1.235-1.275      1.320-1.390

Dry whey (¢/lb.)     25.84      37.16       53.25          56.0-59.0          55.5-58.5

Source: USDA World Ag Supply & Demand Estimates (WASDE) report, May 10, 2012

Feed price forecasts

For dairy producers buying feed, if they can make it through 2012, 2013 should get a little better, according to USDA estimates. 

USDA projects 2012/13 corn production at a record 14.8 billion bushels, up 2.4 billion from 2011/12. A projected 5.1-million acre increase in harvested area and higher expected yields, compared with 2011/12, sharply boost production prospects. The 2012/13 corn yield is projected at a record 166.0 bushels per acre, 2.0 bushels above the 1990-2010 trend reflecting the rapid pace of planting and emergence. Despite the lowest expected carryin in 16 years, corn supplies for 2012/13 are projected at a record 15.7 billion bushels, up 2.2 billion from 2011/12.

The 2011/12 season-average farm price for corn is projected at a record $5.95-$6.25/bushel, but is lowered substantially to $4.20-$5.00/bushel in 2012/13. That compares to $5.18/bushel in 2010/11 and $3.55/bushel in 2009/10. 

USDA projects 2012/13 soybean production at 3.205 billion bushels, up from the 2011 crop as higher yields more than offset lower harvested area. Harvested area is projected at 73.0 million acres, based on a 5-year average harvested-to-planted ratio and planted area of 73.9 million acres. Soybean yields are projected at 43.9 bushels per acre, up 2.4 bushels from 2011. With beginning stocks projected at 210 million bushels, 2012/13 soybean supplies are projected at 3.43 billion bushels, up 4% from 2011/12.

The projected 2011/12 U.S. season-average soybean price is $12.35/bushel. That compares to $11.30/bushel in 2010/11 and $9.59/bushel in 2009-10. USDA’s first price outlook for 2012/13 is in a wide range, $12.00-$14.00/bushel.

Average 2011/12 soybean meal prices were forecast at $360/ton. That compares to $345.50/ton in 2010/11 and $311.25/ton in 2009/10. USDA’s first price outlook for 2012/13 is $335-$365/ton.

  Beef price forecast

The beef price forecast was reduced slightly, but remain high. Potentially impacting cull cow prices, the WASDE 2012 cattle (steer) price estimate was reduced $1-$2/cwt., to $123-$128/cwt. It’s still $10-$14/cwt. higher than the 2011 average of $115/cwt. Highest prices of the year are forecast for the final quarter of 2012. 

In its initial outlook for 2013, USDA put the beef price estimate at $124-$135/cwt.

To see the full WASDE report, visit www.usda.gov/oce/commodity/wasde/latest.pdf.