February 20, 2012

Possible US dairy herd reduction due to lower profits

Dairy cattle herds may shrink due to foreseen continued high feed prices and decreased milk prices compared to last year, slashing revenue for dairy producers, said the February USDA Livestock, Dairy and Poultry Outlook.

The January Cattle report showed a 1% higher inventory of dairy cows on farms than a year earlier. However, the number of heifers for milk cow replacement and the number of heifers expected to calve in 2012 were both reported 1% below a year earlier.

Cheese prices are forecast at US$1.61 to US$1.68 per pound; this represents a reduction from January's estimate and is well below the US$1.825 per pound price posted last year.

Similarly for butter, prices were projected lower at US$1.57 to US$1.67 per pound, representing a downward revision from January and a sharp drop from 2011's average price of US$1.95 a pound. The same market fundamentals apply for both butter and cheese, with higher production overtaking demand.

Non-fat dry milk (NDM) prices were revised downward in February as well. NDM is forecast at US$1.36 to US$1.42 per pound. The sharpest declines in cheese, butter and NDM prices will occur in the first quarter.

Export demand should support some recovery in product prices as the year goes on, but prices for cheese, butter and NDM are not expected to recover to 2011 levels.

The whey price forecast was raised from January to US$0.61 to US$0.64 cents a pound and is well above the 2011 average price of US$0.53 cents a pound. The pace of whey exports has kept prices moving upward for the last 3 years, a situation expected to continue in 2012.