In the past few days, three key reports have been released that provide some insight into what's ahead for dairy markets. They are last Wednesday's Livestock, Dairy, and Poultry Outlook from USDA's Economic Research Service, Thursday's NASS report Cold Storage, and Friday's NASS report, Cattle.
According to the outlook report, the Class III price is projected to average $13.80 to $14.10 per hundredweight this year and climb to $14.40 to $15.40 in 2011. Class IV milk prices are forecast to average $14.65 to $15.05 this year and increase slightly to $14.40 to $15.50 in 2011. The All-Milk Price is expected to average $15.80 to $16.10 in 2010, with a rise to $15.90 to $16.90 in 2011.
Corn prices are forecast to be $3.45 to $4.05 a bushel in the 2010/11 crop year. Likewise, soybean meal prices are likely to rise slightly in 2010/11 to $240 to $280 a ton. Although producer returns have improved over 2009, the outlook report suggests improvement is not enough to result in higher average cow numbers this year or next. Cow numbers are expected to average 9.1 million head this year and be about the same next year. Meanwhile, milk per cow continues to trend upward on a year-over-year basis. The increased output per cow will more than offset reduced herd size this year, resulting in more milk.
Production in 2010 is forecast at 191.2 billion pounds. Next year, the forecast decline in cow numbers is expected to slow even further, and production per cow is expected to be closer to trend, rising 1.6 percent year-over-year. The result is an estimated 193.5 billion pounds of milk in 2011. According to Dairy Market News, seasonally strong production in Northern Hemisphere countries and optimism for the upcoming season in Australia and New Zealand pushed down global dairy prices. U.S. Milk equivalent exports are projected to reach 5.3 billion pounds in 2010 and 5.1 billion pounds next year on a fats basis. Exports on a skims-solids basis are expected to climb to 26.3 billion pounds this year and rise to 27.3 billion pounds in 2011. The skims-solids export forecasts are in the range of 2008 export totals after last year's falloff.
Correspondingly, U.S. imports will be lower this year. A modest rise in domestic use and exports will draw down stocks. On a milk-equivalent basis, ending commercial stocks are expected to tighten both this year and next, and on both a fats- and skims-solids basis. The drawdown in stocks on a skims-solids basis is expected to be more pronounced next year than in 2010.
Thursday's report on late-June dairy product inventories showed that we still have more than a billion pounds of cheese (1.03 billion) in storage. That was 4 percent more than a year ago, and 1 percent more than in May. However, butter stocks were down 7 percent from May and down 25 percent from last June. Friday's report on cattle numbers confirmed that we have a lot of heifers on hand. The mid-year estimate was that there were 4.05 million dairy heifers (500 pounds or more) in the U.S. That was 3 percent more than the 3.95 million on hand a year ago. So, there will be plenty of young cows to milk in the months ahead.
Block cheese prices have showed some strength during the past week. However, Class III milk futures have not responded accordingly.