The USDA’s latest Livestock, Dairy, and Poultry Outlook said “Current year milk and dairy product prices continue a downward glide as milk production continues to expand despite lower producer returns in the face of high feed prices. Next year’s milk production increase is expected to be slight as the cow herd contracts and demand becomes somewhat stronger, lifting prices.”

On a brighter note, the Outlook reported that corn prices are moderating for the current crop year and for 2012/13. Corn was projected at $5.95-$6.25 a bushel in 2011/12, a decline from April’s projection, and then slip to $4.20-$5 next year. 

Higher corn plantings and higher expected yield could lead to a record-high supply in 2012/13 despite tight carryin’ stocks. The recent Crop Progress report showed a crop well ahead of average development for this time of year. While USDA admits this is no guarantee of above-average yields, it “minimizes the risk of yield loss due to late planting.”

Soybean meal continues to inch upward. This month’s forecast calls for prices to average $360 a ton for the current crop year, up from April’s forecast. For 2012/13, prices are forecast at $335-$360 a ton. The April Agricultural Prices reported the preliminary estimate of alfalfa hay at $207 per ton. Hay could move downward with the 2012/13 crop. The benchmark 16-percent protein dairy ration was calculated at $11.20 per cwt. for January-March 2012. Given crop price forecasts, the ration value will likely head down later this year and could fall further in 2013, according to USDA.

“For dairy producers, the welcome relief from high feed prices will likely be countered by lower milk prices for the balance of 2012,” stated the USDA. “With some recovery likely in 2013.” On balance, the milk-feed price ratio is not expected to signal expansion until later in 2013, according to the report. The total number of milk cows for 2012 was raised slightly from April to 9.23 million head. The Milk Production report indicated higher than expected cow numbers and, despite weakening returns, producers were not reducing herds as quickly as expected.
 

The dairy herd in 2013 is expected to decline to 9.17 million head, reflecting 2012’s high feed prices and lower milk prices. Milk per cow for 2012 was boosted to 21,880 pounds from the April projection. Production per cow is forecast at 22,100 pounds for 2013. The rise in milk per cow this year is due to nearly ideal production conditions in much of the U.S. Next year’s projected increase in production per cow reflects the moderating feed price outlook.

Looking “back to the futures;” after factoring in the announced Class III milk prices and the remaining futures, the average Class III milk price for the first six months of 2012 stood at $15.65 on March 2 and $15.70 on May 10. The last half of 2012 was averaging $15.95 on April 20, $15.61 on April 27, $15.08 on May 4, $15.44 on May 11, and was trading around $15.68 late morning May 18.

Lower futures prices for feedstuffs could reduce Milk Income Loss Contract (MILC) payments, according to the University of Wisconsin’s Dr. Bryan Gould and reported by Dairy Profit Weekly (DPW). USDA has already announced MILC payments of 38.9 cents per cwt. for February and 82.6 cents for March. 

Using May 14 settlement futures prices for MILC-related contracts, Gould revised his estimates for the remainder of 2012 and early 2013. He looks for MILC payments to peak in spring and summer and top $1.00 per cwt. in April and July.  For April, Gould projects an MILC payment of $1.18; May, 75 cents; June, 91 cents; July, $1.03; August, 81 cents; September, 38 cents; and October, 11 cents. Updates are posted at his “Understanding Dairy Markets” website.

Meanwhile, cash dairy prices saw a little strength the week of May 14, especially on butter as the markets awaited Friday afternoon’s April Milk Production report which I will detail next week. Cash block cheese closed Friday at $1.50 per pound, unchanged on the week but 20.75 cents below a year ago. The barrels closed at $1.46, up a penny on the week and 25 cents below a year ago. Only one car of each traded hands all week. The AMS-surveyed block price slipped a penny to $1.5269, while the barrels averaged $1.4938, also down a penny.

USDA’s Dairy Market News reports that cheese production remains high as milk looks to find a home away from Class IV production. Discounts are being offered to prompt cheese plants to take extra milk but are cautious to build inventory. Domestic sales are moderate as some buyers are waiting to see if prices will go lower before committing to added purchases. Export sales remain above year ago aided in part by CWT assistance, which was Friday’s DairyLine topic.

DPW Editor Dave Natzke reported that global dairy product sales are a “bright spot,” because USDA’s March dairy trade report indicates exports were valued at a record $484 million, topping $400 million for the 13th consecutive month. Paced by record-high cheese sales and continued strong sales of high-value whey products, export values were up 11 percent from February and 15 percent more than March 2011. Monthly butterfat volumes also improved to a nine-month high, Natzke said. In contrast, March 2012 imports, at $258 million were up just 5 percent from February, and down about 7 percent from a year ago.

“When we look at trade balance,” Natzke said. “March exports were equivalent to 13.6 percent of U.S. milk solids production for the month, while imports equaled about 2.8 percent of production. So far in this fiscal year, exports are estimated at more than $2.6 billion, up 24 percent from the same period a year ago. Imports, at $1.6 billion, are up 9 percent, resulting in a dairy trade surplus of more than $1 billion through the first half of the fiscal year.

Natzke also pointed to National Milk’s CWT program. So far in 2012, CWT has assisted its members to export about 50 million pounds of cheese and 43 million of butter and anhydrous milk fat (AMF). The milk equivalent of those exports is about 1.4 billion pounds, or the annual production of more than 66,000 cows.

Another 28 requests for export assistance were announced this week to sell 2.617 million pounds of cheese and 1.461 million pounds of butter and AMF to customers in Asia, Central America, North Africa and the Middle East. 

 

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