Milk prices should improve second half of 2012, but average below 2011

2012-01-05T10:54:00Z Milk prices should improve second half of 2012, but average below 2011BY BOB CROPP, UW-Extension Agri-View
January 05, 2012 10:54 am  • 

USDA's estimated milk production for the month of November was 1.8 percent above a year ago, the result of 0.8 percent more cows and 1.0 percent more milk per cow. The year could end with total milk production near 196.1 billion pounds, 1.7 percent more than 2010.

The wholesale price of dairy products often decline seasonally starting the end of November into December, especially for butter and cheese. Milk production is increasing as well as the butterfat and protein composition increasing the yield of butter and cheese per 100 pounds of milk. And by the end of November/early December orders of butter and cheese for the holiday season have been filled. The price of dairy products has fallen from their November monthly average with the exception of dry whey which has held near $0.64 per pound which is favorable for the Class III milk price. But, on the CME cheese prices have fallen. The November 40-pound block price averaged $1.87 per pound, was $1.77 at the start of December and as of Dec. 19 it was $1.5625. The CME barrel price averaged $1.90 per pound for November, was $1.71 the start of December and was $1.535 as of Dec. 19.

NASS cheese prices used to calculate the Class III price lag CME prices and with the price of dry whey holding the December Class III price may be near $18.70 compared to $19.07 for November. The average Class III price for the year will be near $18.30 compared to $14.41 for 2010.

Cheese prices may well recover some by mid-January and February but the Class III price for first quarter of 2012 could average near $16.75. Also with lower nonfat dry milk prices dry whey prices will likely show some weakness. Some forecast lower Class III prices, but total cheese stocks have improved with Oct. 31 stocks being 4.3 percent lower than a year ago.

October cheddar cheese production was 5.8 percent below a year ago and total cheese production just 1.7 percent higher. Cheese exports continue to be favorable with October exports 22 percent higher than a year ago and up 31 percent for the year.

CME butter averaged $1.74 per pound for November, started December at $1.64 and was $1.6025 as of Dec. 19. Butter production has been well above a year ago being up 19.6 percent in October. Oct. 31 stocks were 19.3 percent above a year ago, but still 19.2 percent below the five-year average for this date. Butter exports, which were running well above a year ago until fall, were 37 percent lower than a year ago in October but sill 17 percent higher than a year ago for the year. Nonfat milk prices which were as high as $1.68 per pound this summer are now $1.40 per pound. The December Class IV price will be near $17 down from $17.87 in November. The average for the year will be near $19 compared to $15.09 in 2010. With higher average Class III and Class IV prices the U.S. All Milk Price will average near $20 for the year, compared to $16.26 in 2010.

How milk prices play out in 2012 depends heavily upon the level of milk production and the level of dairy exports. Lower milk prices for the start of the year along with relatively high feed cost could stop the increase in cow numbers and dampen increases in milk per cow. USDA's outlook report for November milk production showed cow numbers declined only slightly for the past two months, down 4,000 head from September, but still 1 percent more than a year ago.

Compared to a year ago November milk production was 2.2 percent higher for the 23 reporting states and estimated 1.8 percent higher for the U.S. The increase in milk per cow continued to run below normal trend at just 0.8 percent. The increase in milk production continued to be attributed to Western states. Increases for November were: Arizona 6.0 percent, California 2.4 percent, Colorado 4.7 percent, Idaho 1.7 percent, New Mexico 6.3 percent, Oregon 1.0 percent, Texas 8.4 percent, Washington 4.4 percent and Utah 4.8 percent.

Each state had more milk cows than a year ago. In the Northeast production was down 1.3 percent in New York, 0.2 percent in Ohio and 2.0 percent In Pennsylvania. Each state had fewer milk cows than last year. In the Midwest production was up 1.7 percent in Iowa and 1.6 percent in Wisconsin but down slightly, 0.1 percent, in Minnesota. Compared to a year ago Iowa had 4,000 fewer cows, Minnesota had 1,000 more and cow numbers were unchanged in Wisconsin. It now looks like U.S. milk production for the year will be up about 1.7 percent from 2010.

USDA expects dairy exports to decline some, especially for cheese and butter, but yet remain favorable. If this holds and milk production slows milk prices could well improve the second half of 2012, but are likely to still average below 2011 for the year.

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