USDA dairy outlook: Feed prices ease, but no production rebound Is expected in 2013
As it always does, USDA’s monthly dairy outlook report (released Nov. 16) mirrors the World Ag Supply & Demand Estimates report issued a week earlier. But like predicting the weather, the report reflects some of the challenges of making forecasts.
A cold front has settled over the cheese market. After hovering at or above $2/lb. for most of seven weeks, Chicago Mercantile Exchange (CME) cheese prices fell sharply since peaking at $2.12/lb. for cheddar blocks and $2.08/lb. for cheddar barrels on Oct. 26. As of the close of trading on Nov. 16, block prices were down about 30¢/lb., with barrel prices down 35.75¢/lb.
The impact has been felt on Class III futures prices. On Oct. 26, Class III futures prices averaged $20.81/cwt. for fourth quarter of 2012, dropping to $20.27/cwt. on Nov. 16. USDA’s latest dairy outlook forecasts a fourth-quarter average of $20.80/cwt.
For the first quarter of 2013, Class III futures averaged $19.20/cwt. on Oct. 26, dropping to $18.45/cwt. on Nov. 16. USDA’s dairy outlook forecasts a Q1 2013 average of $19.55/cwt.
USDA forecasts and current Class futures remain in alignment for all of 2013: As of Nov. 15, CME futures averaged $18.408/cwt.; the mid-range for USDA’s forecast was $18.30/cwt.
USDA’s dairy outlook continue below:
Feed price forecasts continue to decline, based on the most recent World Agricultural Supply and Demand Estimates report. The forecast corn price for 2012/13 was lowered to $6.95-$8.25/bushel in November from October. Slightly higher expected production and an increase in imports support the lower price forecast. Similarly, the soybean meal price was lowered in November to $455-$485/ton. Soybean production forecasts were raised in October based on higher yield expectations. Late-season rains helped to boost yields. On balance, corn and soybean meal prices will be higher in 2013 than in 2012 despite the small downward revisions in November forecasts from October. According to the October Agricultural Prices report, the preliminary October price for alfalfa was $212/ton, up slightly from September’s estimate and the October 2011 price. Assuming more normal weather in 2013, alfalfa prices could reflect improved yields. Dairy feed ration prices will likely be lower in 2013 than this year, but will remain high by historic standards.
Herd size projections were unchanged this month from October. The U.S. dairy herd is expected to average 9.225 million head in 2012 and slip to 9.125 million head next year, as a result of the profit squeeze experienced by producers this year. Profitability could improve next year but is unlikely to support herd expansion during the year. Current-year yield per cow was increased to 21,640 lbs., based on a higher than forecast third-quarter yield reported in the October Milk Production report. Milk per cow is forecast at 21,880 lbs. next year, unchanged from October’s forecast. Milk production is projected at 199.7 billion lbs. in 2012 based on the slightly increased yield per cow; production in 2013 is also forecast at 199.7 billion lbs., unchanged from the October forecast.
Fats basis imports are forecast at 3.8 billion lbs. for both this year and next, unchanged from October. Skim-solids basis imports for this year were reduced slightly from last month to 5.8 billion pounds based on lower year-to-date cheese imports. Fats basis exports were reduced in November for both 2012 and 2013 to 9.1 billion lbs. and 8.8 billion lbs., respectively. The export reductions are based on reduced year-to-date and projected butterfat exports. Skims-solids basis exports were raised from October to 33.7 billion lbs. for 2012 and to 32.8 billion lbs. in 2013, based mostly on projected nonfat dry milk (NDM) and whey product exports.
Commercial ending stocks for 2012 on a fats basis were raised in November as butterfat exports are reduced. Fats basis commercial ending stocks were raised slightly in November for 2013 as higher beginning stocks are worked off over the course of next year. Commercial ending stocks on a skims-solids basis were lowered in November for the current year due to tighter supplies of NDM.
Price forecasts for 2012 were reduced in November for cheese and butter, but raised for NDM. Prices for NDM were raised from October based on expected export demand. The cheese price was lowered this month to $1.720-$1.730/lb. for 2012 and was unchanged at $1.735-$1.825/lb. for 2013. Butter price forecasts were lowered to $1.605-$1.635/lb. and to $1.610-$1.730/lb. for 2012 and 2013, respectively. NDM prices are forecast at $1.315-$1.335/lb. in 2012 and $1.420-$1.490/lb. in 2013. Whey prices are projected at 58.5¢-59.5¢/lb. this year, unchanged from October, and raised from last month to 59.5¢-62.5¢/lb. for 2013.
The Class III price forecast was unchanged this month from October at $17.55- $17.65/cwt. and raised for 2013 to $17.85-$18.75/cwt., based on higher whey prices. The Class IV price was lowered for 2012, based on lower butter prices to $15.95-$16.15/cwt., but raised in 2013 to $16.90-$17.90/cwt., due to higher forecast NDM prices next year. The all milk price is unchanged from October at $18.50-$18.60/cwt., but raised for 2013 to $19.10-$20.00/cwt.
Find the USDA dairy outlook report at: www.ers.usda.gov/media/949018/ldpm221.pdf