From the USDA’s newly released “Livestock, Dairy & Poultry Outlook,” a report from the Economic Research Service.
Dairy: Continued rises in milk per cow offset reduced herd size, slowing the rate of decline in milk production in 2009. Continued reductions in the national dairy herd will push milk production further below year-earlier levels in 2010. Imports are expected to rise slightly, and exports remain in decline. Growth in domestic commercial use remains slow this year and should continue slow next year. Some strengthening in prices is expected next year as milk production declines.
Milk production during the second quarter of 2009 was up one-tenth of 1 percent from the second quarter of 2008, even though herd size was 53,000 head smaller
than the corresponding quarter last year. June milk production was down two-tenths of 1 percent from a year earlier. While the June reported herd size was
86,000 head less, production per cow was 13 pounds more than the corresponding month last year. USDA forecasts corn and soybean meal prices to be lower this
crop year. The lower feed prices and cheaper alfalfa hay helped support additional feeding and milk production despite the overall contraction signals from the market. Coupled with relatively slow herd contraction, milk production is projected at 188.2 billion pounds for 2009, less than a 1-percent reduction from 2008.
Prospects are for 2009/10 feed prices to decline slightly from 2008/09, helping boost the milk-feed ratio from this year’s lows. The lower expected feed prices
could provide modest relief to producers as milk prices strengthen over the course of the year, but hardly presage a turnaround in overall dairy market prospects for
producers. The lower feed prices and continued herd contraction will likely continue to boost output per cow in 2010. However, next year, the forecast herd
contraction to 8.9 million cows will outweigh the forecast 1.9-percent increase in output per cow and milk production will likely slip to 186.5 billion pounds.
Although exports were up in June, for the rest of the year exports will be reduced in light of higher domestic prices and increased dairy product availability in world
markets, which reduces the competitiveness of U.S. products. Continued accumulation of dry milk powder in the European Union will likely pressure world
prices, further reducing U.S. export prospects. Overall, exports on a fats basis will remain at 3.8 billion pounds, virtually unchanged in 2010 compared with 2009. On a skims/solids basis, 2010 exports will be slightly higher at 21.2 billion pounds compared with 20.0 billion pounds expected for this year. These forecasts remain well below 2008 totals.
The current USDA forecast assumes that Commodity Credit Corporation net removals will become negative in 2010 as product purchased under the higher
support prices moves back into the market. Cheese and nonfat dry milk (NDM) prices should strengthen in 2009, reflecting the increase in support prices for those
products. Economic recovery in 2010 and slightly lower milk production should help boost prices for all products in 2010. The cheese price is projected to average
$1.235 to $1.255 per pound this year and climb to $1.510 – $1.610 in 2010. Butter prices are expected to average $1.180 – $1.220 per pound in 2009 and strengthen to $1.435 – $1.565 in 2010. NDM prices are projected to average 85 to 87 cents per pound and rise to 94.5 cents – $1.015 per pound in 2010. Whey prices are projected at 24 to 26 cents per pound in 2009 and 28 to 31 cents per pound next year.
Milk prices should recover from 2009 lows next year but should remain well below the highs of 2007 and 2008. The Class III price is expected to average $10.70 –
$10.90 per cwt in 2009 and rise to average $13.75 – $14.75 per cwt in 2010.
The Class IV price is projected to average $10.15 – $10.45 per cwt this year and reaches $12.10 – $13.20 per cwt next year. The all milk price average is expected to be $12.10 – $12.30 per cwt and rise to $14.65 – $15.65 per cwt in 2010.