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USDA Outlook: U.S. Dairy Report

Dec 20, 2010

Firm Demand Will Likely Keep Milk Prices Near 2010 Levels; However, Higher Feed Prices Will Narrow Producer Profits

Feed prices are expected to be much higher for dairy producers next year. The USDA forecast corn price is expected to be $4.80 to $5.60 a bushel for the 2010/11 crop year. Soybean meal prices, while projected to be higher, will not rise as much as corn. They are expected to be $310 to $350 per ton in 2010/11, up from a $311 per ton average in 2009/10. The increase in feed ingredient prices will boost the benchmark 16-percent protein mixed dairy ration price nearly 20 percent above 2010. Higher feed costs are already pressuring producers but will not likely affect cow numbers until the second half of 2011. Cow numbers will continue to increase through the first half of 2011 and are expected to decline slightly in the second half of the year. These changes are expected to leave the herd size next year slightly above the 9,110 thousand head in 2010 at a projected 9,125 thousand head. Milk per cow is forecast to continue to rise next year, but at less than half the pace  forecast for 2010. The current year’s increase in milk per cow was aided by good weather in addition to moderate feed prices. Overall, milk production will be slightly higher next year at 195.5 billion pounds, up 1.4 percent from the 2010 estimated total of 192.8 billion pounds.

Milk equivalent imports on both a fats and skim-solids basis are forecast to be lower in 2010. The fact that international prices are still above U.S. domestic prices for the major dairy products, and that the domestic economic recovery is gradual will limit import totals to 4.1 billion pounds next year, down from 4.3 billion this year on a fats basis and down to 4.9 billion pounds from 5.1 billion this year on a skimsolids basis. Milk equivalent exports rebounded sharply this year from 2009. However, next year exports on a fats basis are expected to weaken to 6.3 billion pounds from the 8.3 billion pound total expected this year. Uncertainty over the Mexican tariff on U.S. cheese exports is contributing to the decline. On a skimsolids basis, exports are forecast to decline slightly to 30 billion pounds from a projected 31.3 billion pound total
expected this year. Oceania milk production is forecast to increase in 2011, raising competition in export markets.

Domestic commercial use on a fats basis is expected to rise by nearly 2 percent in 2011; this would be the sharpest year-over-year rise in at least 4 years. Domestic commercial use on a skim-solids basis is forecast to climb by nearly 3 percent in 2011. The rise would follow a better than 2-percent year-over-year decline expected in 2010.

Strong domestic use, a good export outlook, and only a moderate increase in milk production provide the basis for continued strong price performance estimates for dairy products into 2011. While butter prices have retreated from earlier peaks, the 2010 average price is expected to be $1.685 to $1.715 per pound this year. Prices in 2011, while not as high as this year’s, will still be above those of recent years averaging $1.485 to $1.595 per pound. Despite uncertainty in the cheese export market, domestic demand should be sufficient to boost cheese prices next year.

Cheese prices in 2010 are expected to average $1.515 to $1.525 per pound, rising to $1.535 to $1.615 per pound in 2011. Nonfat dry milk (NDM) prices are also projected higher next year. NDM prices are expected to average $1.160 to $1.180 per pound this year and climb to $1.200 to $1.260 per pound in 2011. Whey prices are likely to average 36.5 to 37.5 cents per pound in 2010 and 36.5 to 39.5 cents per pound next year.

Export prospects for NDM should help keep Class IV milk prices firm into 2011, but not quite as high as this year’s $15.00 to $15.20 per cwt expected average. In 2011, Class IV milk is forecast to average $14.50 to 15.40 per cwt. Class III milk prices should be higher next year. For 2010, the Class III price is expected to average $14.35 to $14.45 per cwt and to climb to $14.45 to $15.25 next year. On balance, this leaves the all milk price next year at $15.90 to $16.70 per cwt, virtually unchanged from the 2010 projected average of $16.25 to $16.35 per cwt.

Source: USDA