Milk price to rise as 'fundamentally tight supply and demand situation' remains

By SEAN ELLIS

Capital Press

BOISE -- A national dairy economist says 2013 should be a much better year for milk prices and producers' bottom lines.

However, weather remains a wild card and could potentially change things, as drought did in 2012, said Peter Vitaliano, vice president of economic policy and market research for the National Milk Producers Federation.

All the signs point to domestic production being flat at best next year and demand growing slightly, Vitaliano said.

"That's going to keep markets tight and prices up," he said. "I think next year is sizing up to be not a bad year for U.S. dairy producers."

Vitaliano is forecasting the U.S. all-milk price for 2013 will be about $20 per hundredweight, which is about $1.40 more than the all-milk price for 2012 is projected to average.

He also said that, based on the futures markets, the historically high corn prices will start coming down in the second half of 2013.

Soybean meal prices will also follow that trend, he said, but alfalfa hay prices will stay high.

"We're not going to get a lot of relief on hay prices next year," he said.

Overall, he said, the higher milk prices should stay above the cost of production and be enough for most dairy producers to earn a profit in 2013.

Weather is the biggest variable that could affect the dairy outlook for 2013, Vitaliano said. Economists didn't factor in the effect the 2012 drought would have on feed costs, he said, and dairy farmers on average lost money for half the year because of it.

"If we have a decent weather year, we're going to have a decent year in the dairy industry," he said.

Kuna, Idaho, dairyman Jack Davis said Vitaliano's dairy outlook forecasts have a good track record but it's hard for him to be optimistic right now.

"I'm very cautiously optimistic," he said about the forecast for higher milk prices. "Everybody's thinking that but we've been in the doldrums for so long, I can't get too overly optimistic about anything."

Davis said he's concerned about feed prices and isn't convinced they will decline.

"A lot of things go into the milk price and feed is a major portion of it," he said. "Who's to say there isn't going to be another drought? Milk prices could be higher but if feed prices are higher, that doesn't do you a hell of a lot of good."

U.S. milk production right now is down from a year ago, Vitaliano said, milk cow numbers are well into a contraction phase and growth in production per cow is on the decline from a year ago.

He said he sees nothing that "is going to overwhelm the fundamentally tight supply and demand situation that all these indicators are pointing to. Prices will stay reasonably high because things are going to be tight."