Government reports predict long-term strength in prices

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Milk production to continue steady growth, reports say


Capital Press

USDA forecasts a downturn in the dairy sector, but the picture should brighten after 2012

The continued outlook for relatively high feed prices and lower milk prices in 2012 will weaken returns for dairy producers in 2012 and lead to herd reduction, USDA's Economic Research Service said in its February Livestock, Dairy and Poultry Outlook.

The higher-than-expected milk per cow seen in the fourth quarter of 2011 should continue in 2012, with the mild winter benefitting milk production, especially in the first quarter.

The agency revised its milk prices downward from its January report to $18 to $18.70 per hundredweight for the all milk price, considerably lower that the $20.15 per hundredweight in 2011.

The agency is now forecasting the 2012 Class III, milk for cheese, price at $16.70 to $17.40 per hundredweight, also considerably below last year's $18.37 average.

However, USDA's Agricultural Long-term Projections report, released in February, expects milk prices and cheese prices to trend upward from 2013 through 2021.

The all-milk price in 2012 is projected at $18.50 per hundredweight, down from 2011's average of $20.15 in 2011, and is expected to rise steadily from $18.85 in 2013 to $21.75 in 2021.

Cheese prices are also expected to decrease in 2012 to $1.73 per pound from $1.82 in 2011. The price is expected to recover to $1.82 in 2013 and rise steadily to $2.10 in 2021.

The agency expects domestic use of dairy products to increase somewhat faster than the growth in U.S. population, with cheese demand benefitting from greater consumption of prepared foods and increased away-from-home eating. Per capita consumption of fluid milk is expected to continue its slow decline.

It also expects the increase in milk prices "will be less than the overall rate of inflation" and attributes much of that to efficiency gains in production.

Average annual milk production per cow, at 21,305 pounds, is expected to increase to 21,600 in 2012 and continue upward to 25,420 in 2021.

Year-to-year declines are expected in cow numbers, from almost 9.2 million in 2011 to about 8.9 million in 2021.

"The decline in cow numbers slows somewhat toward the end of the projection period as the transition in most regions from smaller, diversified farms to larger, specialized dairy operations matures," the report stated.

U.S. dairy exports are expected to dip about a billion pounds in 2012, from 33.1 billion pounds in 2011 to 31.9 billion pounds, but the agency expects them to build over the period to 45.3 billion pounds in 2021.

The U.S. is expected to be well positioned to expand dairy exports, and the agency expects exports to reach record levels on both a fat and skim-solids basis.

"Increased production among the major dairy exporting countries is expected to lag growth in global import demand," the report stated.

Dairy imports are also expected down in 2012, from 5.3 billion pounds in 2011 to 5.1 billion pounds in 2012. They are projected to remain steady through 2015 then increase slowly to 5.6 billion pounds in 2021.

Dairy long-term projections

All milk price, dollar per hundredweight

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

16.26 20.15 18.50 18.85 18.95 19.05 19.50 19.90 20.40 20.85 21.25 21.75

Cheese price, dollars per pound

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

1.52 1.82 1.73 1.82 1.85 1.87 1.91 1.95 1.99 2.03 2.06 2.10

Source: USDA, February 2012

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