Profitability will likely improve next year, report says

By CAROL RYAN DUMAS

Capital Press

Economists at USDA Economic Research Service forecast lower corn and soybean meal prices in the short term but say they will remain high by historical standards.

In addition, they expect those prices to be higher in 2013 than in 2012, resulting in further culling of milking cows next year.

The agency's latest Livestock, Dairy and Poultry Outlook, released Nov. 16, forecasts a 100,000-head decrease in cow numbers, slipping to 9.125 million nationwide in 2013. The drop is a result of the profit squeeze producers experienced this year, the economists said.

"Profitability could improve next year but is unlikely to support herd expansion," the report said.

Jerry Dryer, chief market analyst for Rice Dairy, a Chicago brokerage firm, agrees the cow herd will shrink but not as much as ERS is forecasting. He thinks milk cow numbers will decline through the first half of 2013 and then climb higher in the second half of the year for an average of 9.160 million head, he said.

ERS forecasts an increase in per-cow production in 2013, but Dryer sees that number dropping 0.5 percent due to heat stress and feed quality and availability.

This year's extreme heat, which put stress on cows calving and caused breeding schedule disruptions, will impact milk production well into next year. And cows eating drought-stressed crops won't produce as much milk as usual, he said.

As for the milk price, ERS forecasts the Class III price will average $19.95 for the first quarter of 2013 and $18.30 for the year.

Dryer expects that price to be more like $21.55 for the first quarter and $19.95 for the year.

ERS's price forecast for dairy products for 2012 and 2013 are all lower than current prices.

The agency's average cheese price is forecast at $1.725 a pound in 2012 and $1.78 a pound in 2013. The NASS weekly survey price for cheese was $2.057 for blocks and $2.029 for barrels for the week ending Nov. 17. ERS's average butter price is forecast at $1.62 a pound in 2012 and $1.67 in 2013. The most recent NASS survey price is $1.879 a pound.

The ERS price forecast for nonfat dry milk is $1.325 and $1.455 for 2012 and 2013, respectively. The most recent NASS survey price was $1.516. The agency's price forecast for whey is 59 cents and 61 cents a pound in 2012 and 2013, respectively, and the latest NASS survey price was almost 65 cents a pound.

Milk price outlook

2012 2013

Dollars per hundredweight

All milk 18.50-18.60 19.10-20.00

Class III 17.55-17.65 17.85 18.75

Class IV 15.95-16.15 16.90-17.90

Dairy products price outlook

2012 2013

Dollars per pound

Cheese 1.720-1.730 1.735-1.825

Butter 1.605-1.635 1.610 1.730

NDM* 1.315-1.335 1.420-1.490

Whey 0.585-0.595 0.595-0.625

*nonfat dry milk

Source: USDA-Economic Research Service

Year cows milk production

million head billion pounds

2007 9.189 185.6

2008 9.315 190.0

2009 9.203 189.3

2010 9.119 192.9

2011 9.194 196.2

2012* 9.225 199.7

2013* 9.125 1997

* projected

Source: USDA-NASS