The big question in everyone’s mind is what lies ahead in 2012. The USDA revealed what it sees in the crystal ball via its monthly World Agricultural Supply and Demand Estimates report. The Department lowered its milk production forecast slightly for 2011 due to lower expected cow numbers for the fourth quarter, but the forecast for 2012 was unchanged from last month.

The 2011 estimate was put at 196 billion pounds, down 100 million pounds from the December estimate, and 2012 output remains projected at 198.5 billion pounds.

The 2012 cheese price forecast was lowered, but the nonfat dry milk (NDM) and whey price forecast was raised. The higher whey price is expected to more than offset the lowered cheese price forecast, resulting in a higher 2012 Class III milk price. The range was put at $17.10-$17.90 per cwt., up 20 cents from last month’s projection, but compares to $18.37 in 2011, $14.41 in 2010, and $11.36 in 2009.

The higher forecast NDM price results in a higher Class IV price range of $16.45-$17.35, up a dime from last month’s estimate, and compares to $19.04 in 2011, $15.09 in 2010, and $10.89 in 2009.

The latest Crop Production data showed increased estimates of 2011 corn and soybean production and December stocks, and raised projected carryovers. USDA reported 2011 production at 12.36 billion bushels of corn and 3.06 billion bushels of soybeans, both slightly higher than the average trade estimate but within the range of estimates, according to FC Stone’s Roy Leidahl in the Jan. 12 e-Dairy Insider Opening Bell.

Projected carryover of 846 million bushels was higher than the average trade estimate of 753 million. Soybean carryover projected at 275 million bushels was nearly 50 million higher than average trade estimates. USDA shows December corn stocks at 9.64 billion bushels, up from trade expectations of around 9.4 billion.

December soybean stocks at 2.37 billion bushels, was about 50 million bushels higher than average trade estimates, according to Leidahl. Cottonseed production for 2011, based on a 3-year average lint-seed ratio, was expected to total 5.27 million tons, down 14 percent from last year.

Hay stored on farms on Dec. 1 totaled 90.7 million tons, down 11 percent from a year ago, and the lowest Dec. 1 stocks on hand for the United States since 1988. Hay stocks decreased across much of the nation’s midsection and in most cases, were attributed to an unusually dry year that negatively impacted hay production as well as pasture and rangeland.

Stocks on hand were the lowest since 1985 in Oklahoma and Texas, two States that were hit hardest by this year’s prolonged drought, according to USDA.

The CME’s Jan. 10 Daily Dairy Report (DDR) said that, “On the heels of the driest year on record, West Texas has been hit with massive snowfall the last two weeks. Some counties received nearly 20 inches this season, more than triple the snowfall in Buffalo and double that in Minneapolis.

Winter still hasn’t really set in, in the Midwest, according to the DDR, where temperatures were 20-30 degrees above normal and snowcover was almost completely absent. Still, nearly a third of Texas remains in exceptional drought, the most extreme category, according to USDA’s Drought Monitor.

The Class III milk price average for the first six months of 2012 stood at $17.16 on Dec. 2, $16.84 on Dec. 9, $17.07 on Dec. 16, $17.04 on Dec. 23, $17.60 on Jan. 6, and was hovering around $17.34 on Jan. 13.

The cash dairy markets saw little change the second week of 2012. Block cheese closed Friday the 13th at $1.5950 per pound, down 1.5 cents on the week but 7 cents above a year ago when the blocks jumped 16 cents. Barrel closed at $1.55, down 4 cents on the week and 7.5 cents above a year ago when the barrels rolled 13.25 cents higher. Twenty one cars of block traded hands on the week and four of barrel. The NASS-surveyed U.S. average block price lost 5.7 cents, slipping to $1.5810. The barrels averaged $1.6036, down 0.6 cent.

Market analyst Jerry Dryer wrote in his Jan. 6 Dairy and Food Market Analyst that there would likely be more cheese price strength the second week of 2012 and “maybe for the next two weeks, then look for a retracement in prices as the sales lull ahead of the Easter/Passover holiday. “The aforementioned holidays are reasonably good for sales, and they are two weeks earlier this year than last,” Dryer reported.

He said overseas orders for Second Quarter 2012 and Second Half 2012 will support the market in the not-too-distant future. And the milk supply will begin to tighten up. Cash butter closed the second Friday of 2012 at $1.6125, up three-quarter cents on the week but 48.75 cents below a year ago. Six cars were sold on the week. NASS butter averaged $1.6015, up 1.4 cents. NASS nonfat dry milk averaged $1.4133, up 1.3 cents, and dry whey averaged 67.91 cents, up 0.8 cent.

The views and opinions expressed in this column are those of the author and not necessarily those of Farm World. Readers with questions or comments for Lee Mielke may write to him in care of this publication.