Milk price outlook improves slightly

The Class III price is projected to average $13.95 to $14.35 per hundredweight in 2010, according to USDA's June 18 Livestock, Dairy, and Poultry Outlook Report. The 2010 average through May is $13.57. USDA forecasts that the Class III average for 2011 will climb to between $14.35 and $15.35 per hundredweight.

The All-Milk Price is expected to average between $15.75 and $16.15 per hundredweight in 2010 when all is said and done. The 2010 average through May is $15.28. The agency forecasts a slight rise in the 2011 All-Milk Price to between $15.80 and $16.80. This a 10-cent-per-hundred jump from the previous estimate.

Feed corn prices are projected to be $3.45 to $3.65 per bushel for the 2009/10 crop year and to rise to average $3.30 to $3.90 in 2010/11. Likewise, soybean meal prices are expected to average $295 per ton this year and $230 to $270 next year.

The U.S. herd is expected to average 9.075 million cows in 2010 and 9.040 million in 2011. Milk production per cow is expected to increase nearly 2 percent in 2010 over 2009 to about 20,980 pounds per cow. In 2011, production per cow is forecast to rise another 1.8 percent to 21,355 pounds. The expected increase in milk per cow will provide 190.4 billion pounds of milk in 2010 and 193 billion pounds in 2011.

Lower milk production in Oceania has tightened world supplies of major dairy products. The impact on U.S. markets is to lower milk equivalent imports on both a fats and skims-solids basis and support exports. Exports of cheese, butter, and nonfat dry milk (NDM) were all higher in April, and the difference between U.S. and international prices remain favorable for U.S. exports. However, the strong U.S. dollar relative to the Euro and relatively large European Union (EU) intervention stocks of powder could be factors that limit U.S. powder exports.

Milk equivalent exports are projected to reach just over 5.0 billion pounds this year and 5.1 billion in 2011 on a fats basis. The corresponding

export forecasts on a skims-solids basis are about 26 billion pounds and 27.1 billion pounds.

While demand, both foreign and domestic, is recovering, continued increases in the milk supply will keep prices from rising appreciably. Cheese prices are forecast to average $1.485 to $1.525 per pound this year and rise slightly to $1.520 to $1.620 per pound next year. Butter prices are projected to average $1.475 to $1.545 per pound both this year and slip to average $1.390 to $1.520 next year.

Improving domestic demand for these products has firmed prices, but higher milk supplies will keep a lid on prices. Nonfat dry milk prices are forecast to average $1.200 to $1.240 per pound in 2010 and rise to average $1.235 to $1.305 per pound next year. Tight international supplies and the expectation of stronger exports support the expected higher prices. Whey prices are forecast to average 36.5 to 38.5 cents per pound and rise fractionally to 37.5 to 40.5 cents per pound in 2011.

Milk supplies putting pressure on prices

Expect gradual improvement in milk prices and margins, according to USDA's recent Livestock, Dairy, & Poultry Outlook. Corn prices are forecast to average $3.50 to $3.70 a bushel through this crop year, moderating to $3.20 to $3.80 longer term. Soybean meal price is expected to average $295 a ton this crop year and $230 to $270 longer term. Modest improvement in both feed and milk prices is not likely to ignite an expansion in U.S. dairy herd size. The number of cows is projected to average 9.07 million this year and to continue a gradual decline in 2011, to average 9.04 million. On balance, the higher milk per cow during the year is expected to offset the decline in herd size, leading to higher milk production. Prospects are for improved demand, both foreign and domestic, for dairy products in 2011. Higher domestic use is expected to support slightly higher imports next year. Meanwhile, global economic recovery is continuing apace, boosting international trade in dairy products. Domestic commercial use is expected to increase this year. A robust 1.2 percent rise is expected in commercial use on a fats basis while growth in use on a skims-solids basis is projected at a slight 0.4 percent rise. Stocks should tighten as use strengthens. Despite the improved demand outlook, prospects are for only modest price increases in 2011. Cheese prices are forecast to trend higher both this year and next, averaging $1.480 to $1.530 per pound this year and $1.505 to 1.605 per pound in 2011. Higher prices are also expected for NDM and whey for the balance of 2010 and into 2011. The prospect is for only moderate price increases in milk prices in 2011 as milk production continues to rise. The Class IV price is expected to average $14.15 to $14.75 per cwt. this year and only slightly higher next year at $14.15 to $15.25 per cwt. Class III prices are projected to average $13.95 to $14.95 per cwt. in 2010 and to climb to $14.25 to $15.25 per cwt. next year. The all milk price will average $15.65 to $16.15 per cwt. this year and rise to average $15.70 to $16.70 per cwt. next year.

Baseline projections for dairy appear bullish

Milk prices will move higher in the years ahead, according to a report to Congress given by FAPRI (the Food and Agricultural Policy Research Institute at the University of Missouri). FAPRI makes projections based on current policies and doesn't try to anticipate federal dairy and ag policy changes and directions.

FAPRI projects an All-Milk Price of nearly $17 for 201o, an estimate that may have been made before Class III futures for 2010 made significant downturns. The All-Milk Price for 2009 was just $12.79. However, FAPRI has the All-Milk Price averaging between $17 and $18 per hundredweight between 2011 and 2013 and rising to between $18 and $19 for 2014 through 2019.

The projections have the Class III price averaging $15.41 for 2010, although the futures prices currently are averaging just over $14. FAPRI has the Class III price averaging in the upper $15s during 2011 and 2012, rising to more than $17 by 2019.

Cow numbers during 2010 will not average below 9 million head as USDA predicted earlier, according the FAPRI projections. The report puts cow numbers for 2010 at 9.024 million head, but averaging fewer than 9 million head each year through 2019.

FAPRI projects total milk production to climb 1.1 percent per year between 2011 and 2019, topping 200 billion pounds in 2015 and reaching 209.2 billion by 2019.

Milk yield per cow is expected to go up about 1.3 percent per year, reaching nearly 23,500 pounds by 2019.

Stronger world prices will help drive U.S. milk prices, according to FAPRI projections. The world price of cheese is expected to be between $1.60 and $1.80 a pound between 2011 and 2019. The nonfat dry milk price could run between $1.25 and $1.40 a pound.

Fluid milk per capita consumption in the U.S. will stay flat or decline, but cheese consumption per person is expected to continue to rise reaching 34.2 by 2019.

Smaller drop in cows and milk expected

Cow numbers and milk production may not drop as much this year as expected earlier, according to USDA's dairy outlook report released yesterday. The size of the U.S. dairy herd is expected to decline from an average of 9.2 million head in 2009 to an average of 9.015 million
this year. The big heifer inventory suggests that the decline in herd size will be more gradual than earlier forecast.

Milk per cow is forecast to increase 1.8 percent this year, to 20,950 pounds from
20,576 pounds last year.

Feed prices will decline as the price of corn is expected to average $3.45 to $3.95 per bushel in the 2009/10 marketing year and soybean meal is forecast to average $270 to $320 per ton. These forecast prices represent substantial declines from $4.20 per bushel for corn and $336 per ton for soybean meal posted for 2008/09. The resulting Milk-Feed Price ratio's will not be enough to create expansion, but they could limit the rate of decline in milk production.

Year-ending stocks in 2009 were about 12 percent higher on a milk equivalent fat basis than at the end of 2008, mostly due to especially high cheese stocks. On a milk equivalent skim-solid basis, stocks were about 3 percent higher.

USDA forecasts dairy product exports to rise substantially in 2010 compared with 2009’s depressed levels. Exports are projected to increase from 4.0 to 4.8 billion pounds on a milk equivalent fat basis and from 22.7 to 25.7 billion pounds on a milk equivalent skim-solid basis.

Domestic commercial use, on a skim-solid basis, is forecast to increase to 168.3 billion pounds in 2010 from 166.4 billion in 2009 and to rise to 188.8 billion pounds from 186.2 billion on a fat basis. Commercial use rose in 2009, mostly due to low prices, but the commercial use forecast this year will hinge more on the strength of economic recovery in light of higher
expected prices.

Cheese prices are forecast higher in 2010, at $1.575 to $1.645 per pound. Likewise, butter prices will strengthen in 2010 averaging $1.395 to $1.495 per pound. Prices for dry products will also rise this year. NDM prices are forecast to average $1.175 to $1.235 per pound and whey to average 37.5 to 40.5 cents per pound in 2010.

Based on product price forecasts, milk prices will rise in 2010 from those of 2009. The Class IV price is expected to be $13.95 to $14.75 per cwt, and the Class III price is projected to average $14.90 to $15.60 per cwt. The all milk price is expected to be $16.20 to 16.90 per cwt in 2010.

USDA bumps up milk price forecast a bit

Cheese and butter price forecasts for 2010 are little changed from last month in USDA's World Agricultural Supply Demand Estimates. But the Class III price estimate for 2010 was raised about a dime from last month due to higher forecast whey prices. The forecast for the Class III midpoint was $15.25 ($14.90 to $15.60) compared to $15.15 ($14.75 to $15.55) a month earlier. However, the Class IV price forecast was lowered reflecting weaker nonfat dry milk prices.

The all milk price is forecast at between $16.20 and $16.90 for 2010 (midpoint $16.55) compared to a midpoint of $16.60 in the January estimate.

The milk production forecasts for 2010 were raised by half a billion pounds to 188.9 billion, up from 188.4 last month. Milk production was forecast higher for 2010 based on the higher-than-expected January 1 dairy replacement heifer estimate. Herds are not expected to decline as rapidly as forecast last month, boosting milk production.

Dairy exports on a skim-solids basis for 2010 are raised, reflecting higher sales of cheese and nonfat dry milk. Import forecasts are lowered for 2010. Fat and skim-solids ending stocks are estimated higher for 2009 and stocks for 2010 are raised in the face of higher production.

ATTENTION COW JUDGING CONTEST PARTICIPANTS: Due to the poor print job of the Holstein class on the cover of our January 25 issue, we have reproduced the Holstein class on our web site. We apologize for the difficulty many have had in getting a good look at the cows in the Holstein class. We have made changes to ensure better print jobs in the future.

USDA expecting strong milk per cow

Expectations of higher milk per cow during 2010 have resulted in USDA pushing up expected milk production this year and lowering milk price forecasts slightly. The agency still expects cow numbers to average below 9 million cows for the year. (The December national herd estimate was 9.08 million cows.) However, some analysts doubt that cow numbers will be as low as the USDA predicts.

The USDA expects the higher milk per cow (+1.9 percent) to come about for two reasons. First, feed prices will be lower, encouraging more grain and protein supplement feeding. Corn price projections are in the range of $3.40 to $3.85 a bushel ($121 and $138 a ton) and soybean meal between $265 and $315 a ton. With rising milk prices, the Milk-Feed Price Ratio will improve but not as high as 2.5 which is the level that generally encourages milk production growth because of heavier feeding and less culling.

Another factor affecting milk per cow is the amount of culling that took place during 2009. Between normal culling and CWT cow retirements, dairy cow slaughter last year was up 224,000 head or 8.7 percent from 2008. The nation's dairy herd is younger and healthier as a result of the culling and should be more productive on a per-cow basis.

In its most recent outlook report, UDSA projects 2010 milk production to be about 188.4 billion pounds. That would be 0.4 percent below the estimated 2009 milk production of 189.2 billion pounds.

USDA forecasts that the Class III price in 2010 will average about $15.15 (between $14.75 and $15.55). That estimate is between 30 and 40 cents lower than earlier forecasts. The average Class III price in 2009 was $11.36 per hundredweight.

USDA forecasts the All-Milk Price for 2010 to be around $16.60 (between $16.20 and $17). The All-Milk Price averaged $12.79 in 2009.

The gift of higher milk prices ahead

Feed costs have fallen substantially in 2009 but are unlikely to fall as much next year, according to the latest USDA Economic Research Service outlook report. The benchmark 16 percent protein ration value is projected to average in the mid-$7 per hundredweight range this year compared with over $9 in 2008.

The U.S. dairy herd is forecast to continue to contract in 2010, with most of the herd reduction coming in early 2010. The U.S. dairy herd is expected to average 8.97 million next year and is expected to average below 9 million cows in each of the four quarters of 2010. The forecast decline in herd size will represent a 2.5 percent decline year-over-year. This decline follows a 1.3 percent decline in 2009. In contrast, milk production per cow is forecast to rise to 20,950 pounds, a 1.84 percent year-over-year increase and slightly ahead of the five-year-trend increase.

Commercial disappearance is forecast to rise by less than half-a-percent next year on a fat basis and to be virtually unchanged from 2009 on a skims-solids basis. World markets and export forecasts remain firm.

Cheese prices will likely average $1.290 to $1.300 per pound in 2009 and rise to average $1.615 to $1.695 in 2010. After averaging $11.30 to $11.40 in 2009, Class III prices are forecast to rise to average $15.15 to $15.95 next year. The all milk price is expected to average $12.70 to $12.80 this year and rise to average $16.35 to $17.15 in 2010.

Milk price will continue to strengthen

We can expect higher milk prices in the months ahead. The recent USDA Economic Research Service publication, Livestock, Dairy, and Poultry Outlook, explains the fundamentals at work.

Simply put, milk supply will be coming back into closer balance with demand. A continued drop in cow numbers will be a big driver. There has been a 226,000-cow drop in the U.S. dairy herd size during the past year. USDA expects the U.S. dairy herd to average 2 percent fewer cows during 2010 than in 2009. The estimated national herd in October was 9.1 million cows.

Declining feed prices should help push up milk per cow to trend levels during 2010. The 2009 average is expected to end up around 20,570 pounds per cow and rise to 20,950 next year, a gain of 1.85 percent.

The average price of corn next year is estimated to be around $3.55 per bushel compared to just over $4 this year. Soybean meal price for 2010 is projected to be around $280 per ton compared to $331 this past year.

USDA now is forecasting 2010 milk production to be 187.7 billion pounds, which would be a 0.8 percent drop from where milk production is expected to end up for 2009.

World demand, especially for butter and powder products, is improving the export outlook. The improved outlook for economic recovery in the rest of the world, especially in Asia, combined with lower-than-forecast milk production from Oceania, form the basis for robust export demand, says the report.

Cheese and butter prices next year are forecast to be approximately 35 cents and 27 cents a pound higher next year, respectively. This would translate into an average Class III price next year of around $15.40 next year compared to about $11.25 this year. The All-Milk Price could average in the range of $16.50 per hundredweight next year compared to $12.65 this year.

Higher milk prices ahead, but . . .

Fortunately, higher milk prices are on the horizon. However, they may not be as high as they might have been, and, certainly, won't be what a lot of us would like to see.

Two developments that are dampening the milk price outlook is that cow numbers are not declining as fast as they might, and milk per cow is expected to climb with some strength next year.

The USDA's recently published outlook report predicts that cow numbers will continue to decline slowly during the rest of 2009 and during 2010. In 2010, the average size of the national dairy herd is expected to average below 9 million cows. That would be the first time that has happened in decades.

On the other hand, the rise in milk production per cow is expected to be 1 percent during 2009 and go up another 1.8 percent during 2010. That increase for 2010 is above the five-year average gain in milk per cow.

The decline in cow numbers will not be enough to offset the rise in milk per cow. Total milk production in 2010 is forecast to decline to 187.2 billion pounds. That would be down just slightly from milk production for 2009 projected to be 188.9 billion pounds. And that is why milk prices during the months ahead may not be as high as they might have been otherwise.

Thanks largely to recovering dairy product exports, we can expect dairy product prices to rise in late 2009 and during 2010. As a result, USDA is expecting the benchmark Class III price to average between $13.85 and $14.75 next year. That compares to an anticipated 2009 average Class III price of just over $11. The Class IV price next year is expected to average between $12 and $13. It should end up averaging about $10.45 this year.

The All-Milk Price during 2010 is expected to average in the range of $14.70 to $15.60, says USDA. For 2009, the All-Milk Price should average around $12.40.