February 11, 2009

The US dairy industry is expected to continue facing pressure as returns and demand are forecast to remain weak amid slightly higher dairy cow inventories.

Milk production forecasts for 2009 are lowered from last month, while a January cattle report estimated that dairy cow inventories on January 1 were nearly 1-percent higher from a year ago.

If no significant herd reductions take place in the first half of 2009, producer returns are expected to be heavily pressured, leading to a sharp drop in inventories in the second half of the year.

Both domestic and export demand are seen to remain weak due to economic uncertainty. Commercial export forecasts for 2009 are reduced from last month due to weak international demand and expected competition from the EU. However, lower global prices are expected to slightly boost US imports of dairy products.

Milk and dairy product price estimates for 2009 are reduced as prices are expected to be pressured by weak demand and high supplies. As milk production is reduced, especially in the second half of 2009, tighter milk supplies are projected to help boost prices.

But weaker demand will keep prices lower than the forecast last month, with all milk price forecast at US$10.95 to US$11.65 per cwt.