USDA Outlook: U.S. milk production forecast to reach 196.1 billion lbs. in 2011, increase to 198.5 billion lbs. in 2012; Class III milk prices expected to be US$16.90-US$17.70/cwt. next year, down from US$18.30-US$18.40/cwt. this year

Andrew Rogers

Andrew Rogers

Dec 15, 2011 – U.S. Dept. of Agriculture (USDA)

WASHINGTON , December 15, 2011 (press release) – The following article is excerpted from the December Livestock, Dairy and Poultry Outlook published by the Economic Research Service of the USDA.

Higher Domestic Milk Production and Stronger Competition in Export Markets Will Lower Milk Prices in 2012

The December corn price forecast for 2011/12 is $5.90 to $6.90 a bushel. This adjustment represents a lowering of 30 cents a bushel on each end of the price range from last month. Although the 2011/12 use numbers were changed only slightly, prices received by farmers are reported to be below cash market bids, reflecting deliveries of grain that were forward-priced earlier in 2011. Also, declines in futures prices since November have tempered the price outlook for the coming months. Soybean meal prices have also been lowered, the December forecast being $280 to $310 a ton in 2011/12. Lower forecast production is balanced by lower expected domestic use. The preliminary November price for alfalfa hay was reported in the Agricultural Prices report at $198 a ton, a slight decline from October’s reported $206 a ton but still well above year-earlier prices. With a return to more normal weather conditions next year, alfalfa hay prices should moderate in 2012. The preliminary milk-feed price ratio for November was estimated at 1.80, virtually unchanged from October but well below the 2.23 a year earlier.

Cow numbers were virtually unchanged from the November forecast at 9,200 thousand head for 2011 and remain at 9,190 thousand head in 2012. Dairy cow slaughter for the January to October 2011 period is about 4 percent above slaughter for the corresponding period of 2010 according to the November Livestock Slaughter report, and replacement heifer prices are steady. This suggests no major liquidation is in the offing, but cow numbers are expected to decline slightly next year. Output per cow continues to rise, and lower expected feed prices are the basis for the increase in the December projected output per cow to 21,315 pounds this year and 21,610 pounds next year. Slightly more milk is forecast in December than in November, both this year and next. Production is forecast at 196.1 billion pounds this year, rising to 198.5 billion pounds in 2012.

Fat-basis milk equivalent dairy import forecasts in 2011 were raised this month to 3.3 billion pounds, based on slightly higher imports of butterfat and food preparations. In 2012, fat-basis imports are forecast at 3.2 billion pounds, unchanged from the November forecast but down from 2011. Skim-solid basis import forecasts were left unchanged from last month at 5.3 billion pounds. In 2012, skim-solid basis imports are forecast to fall slightly to 5.2 billion pounds.

Milk equivalent fat-basis exports were raised slightly this month to 9.3 billion pounds. The export total was raised due to higher than expected milk and cream shipments. Next year, fat basis exports are forecast at 8.6 billion pounds, unchanged from last month. This year’s skim-solid basis exports are forecast at 33.6 billion pounds, up from November due to stronger skim milk powder exports. Next year, the forecast is unchanged from last month at 31.9 billion pounds. Increased global production will likely present stronger competition for U.S. exporters of skim powder products.

Commercial domestic use is projected at 188.8 billion pounds fat basis for 2011 and 191.9 billion pounds in 2012. Commercial domestic use on a skim-solid basis is forecast to reach 166.9 billion pounds this year, a decline from November’s forecast, but an increase from 2010. Next year, skim-solid domestic use is forecast to rise from 2011 to 171 billion pounds, an increase from November expectations and a 2.5 percent rise above 2011 expected totals.

Cheese prices are forecast to average $1.820 to $1.830 a pound in 2011, unchanged from November’s forecast, but are projected lower in 2012 at $1.675 to $1.755 a pound. Domestic use of cheese was lower in the third quarter of 2011 compared with 2010, and both domestic and Oceania prices have recently declined sharply, supporting the lowered price forecast. Recent weakness in butter prices has led to a lowering of 2011 butter prices from November projections to $1.935 to $1.965 a pound in the December forecast. Stronger global competition in 2012 is expected to moderate butter prices even further in 2012. Butter prices are forecast at $1.605 to $1.715 a pound next year. Higher global production will similarly affect NDM prices. NDM prices are projected at $1.495 to $1.515 a pound this year, a slight downward revision from last month. Next year, prices are expected to drop more significantly to $1.360 to $1.420. The outlier is whey. Exports have been brisk in 2011 and are likely to continue strong in 2012. Whey prices are forecast at 52.5 to 53.5 cents a pound in 2011, unchanged from last month. Next year, prices are expected to rise from 2011 to 53.5 to 56.5 cents a pound, a substantial upward revision from November.

Milk prices will be lower next year based on lower product prices. Class III prices are expected to be $16.90 to $17.70 per cwt next year, down from an expected $18.30 to $18.40 per cwt in 2011. Lower cheese prices will probably overcome the relative strength in whey prices, lowering the Class III price. The Class IV price is also expected to be lower in 2012 at $16.35 to $17.25 per cwt, a decline from $18.95 to $19.15 per cwt in 2011. The 2012 all milk price is forecast at $18.10 to $18.90 per cwt, down from $20.05 to 20.15 per cwt in 2011.

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