Economists predict better times ahead for dairies
By CAROL RYAN DUMAS
With feed grain prices coming down and U.S. exports strong, economists with the University of Wisconsin are projecting good times ahead for dairymen -- if they can keep a handle on milk production.
Forecasts for the margins of milk price over feed costs are showing a rapid rise into July, from about $6.50 per hundredweight of milk to $9.50. They continue climbing upward to almost $11 in September and stay above $9 into next March, said Mark Stephenson, director of dairy policy analysis at the university.
He and Bob Cropp, professor emeritus with the university, said 2013 is going to be a better year for dairymen during their April Dairy Situation and Outlook podcast on Monday.
In its abridged production report for March, USDA National Agricultural Statistics Service reported milk production was down 0.1 percent over year-ago levels. While production is up in the Northeast and upper Midwest, it was down 3.3 percent in California, 2.8 percent in Arizona, 2.9 percent in New Mexico and 4.1 percent in Texas and was up 0.5 percent in Idaho.
The U.S. was awash in milk at the same time last year, with production up more than 4 percent over the previous year, Cropp said.
With NASS suspending its survey, no one can know for sure about cow numbers and milk per cow, but the drop in milk production is probably due to a decline in cow numbers, he said. Cow slaughter is higher and heifer replacements are lower than last year.
The large flush of milk last year, due to a mild winter, had folks in the upper Midwest scrambling to find plant capacity. With dairymen now heading into the heart of flush, there's probably some similar concern, Stephenson said.
Production is up a little in the region and there has been some distressed milk floating around the last couple of weeks, but it shouldn't be a problem this year, Cropp said.
"I think we can handle it if the flush isn't as strong as it was last year," he said.
And production is down in the West, so producers there don't have the problem they did last year when some co-ops put farmers on quotas because they couldn't handle all the milk, he said.
Markets clearly have been bull-oriented with a march up on spot prices for cheese and butter and nonfat dry milk, Stephenson said.
From the beginning of the month until now, barrel cheese has moved up 21 to 22 cents a pound to $1.77, blocks have moved up 30 cents a pound to $1.88 and butter's gone up 21 cents a pound to $1.79, Cropp said.
That's put fuel into the futures market, strengthening prices for nonfat dry milk and whey, he said.
Prices and U.S. exports are responding to lower milk production in New Zealand, the European Union and Argentina, all major exporting regions, the economists said.
In the first two months of the year, U.S. exports increased 30 percent for butter, 9 percent for cheese and 37 percent for lactose. Powder exports were down, but should pick up, Cropp said.
"The export picture looks fairly bright, which I think is adding strength to these prices," he said.
Last month, Stephenson forecasted milk prices of $20 a hundredweight and is sticking with that prediction. High stocks are keeping downward pressure on cheese futures, but exports will likely work that out, he said.
Class IV futures have already hit $20 for May through September, and Class III futures are in the high $19 range for that period, Cropp said.
USDA projected only a 1 percent increase in milk production for 2013, and if that bears out, $20 milk is likely. The bad news is milk production could start picking up in response to good prices, he said.