The Agriculture Department latest Livestock, Dairy, and Poultry Outlook issued this morning says that, “While milk production continues to rise, the increases are small compared with recent years.” Cow numbers are expected to decline in 2009, according to the Outlook, and production increases will come from slightly higher expected yields.
“Commercial use should pick up in 2009 compared with 2008,” the report said, “but export prospects will be limited.” Class III prices are forecast lower, while Class IV prices should climb slightly. The overall impact is for a slightly lower all milk price in 2008 compared with last year and a lower price in 2009 compared with this year.
The milk production forecast was raised slightly in September from last month as cow numbers were adjusted to continued herd growth. Cow numbers are projected to average 9,260-thousand head for 2008. Next year, herd size is forecast to contract to 9,235-thousand head. The forecast decline is based on expected higher feed costs and lower milk prices. Cow slaughter is higher than a year ago and replacement prices lower.
Production is expected to rise incrementally to 190.8 billion pounds in 2009, less than a 1-percent rise from 2008?s estimated production. The increase is based on gains in production per cow, which are estimated to average less than 1 percent in 2008. However, the milk per cow increase forecast for 2009 will be the smallest since 2004.
It appears that higher feed prices and lower product prices are continuing to have an impact on the rate of increase in milk production, since the rate of increase in output per cow has been declining since 2005. That the impact has not developed more rapidly suggests that many largeroperators may have lowered breakeven points in recent years.
Demand growth across all major products appears to be slowing. Cheese and butter production in 2008 lead last year?s totals on a year-to-date basis. This month?s forecast shows higher expected stock levels on skim-solids basis, indicating softening demand for butter and powder products. A slowing domestic economy has stressed the restaurant sector, which?along with higher food and energy prices?is dampening cheese demand.
Butter and nonfat dry milk (NDM) had benefited from strong export sales, but exports are forecast to taper off toward the end of 2008 and decline slightly in 2009. A slowing global economy, the dollar strengthening against the Euro and other currencies, and increasing foreign production underpin the export forecast. Of special note, is that declining oil prices may affect a number of major NDM importers (Mexico and Algeria among others).
While slower milk production growth should limit price declines, softening demand both domestically and internationally contributes to lower prices for the balance of 2008 and into 2009 compared with 2007. The cheese price is forecast at $1.905 to $1.925 per pound this year and to decline to $1.840 to $1.940 per pound in 2009.
Butter prices, which have been near record highs this year, are projected to average $1.405 to $1.445 per pound in 2008 and decline to $1.350 to $1.480 per pound next year. Slower exports take a toll on NDM prices both this year and next, as the annual price is expected to average $1.375 to $1.395 per pound in 2008 and $1.455 to $1.525 per pound in 2009. Whey prices, in the doldrums after 2007 highs, areexpected to average 26.0 to 28.0 cents per pound this year and increase fractionally in 2009 at 26.0 to 29.0 cents per pound.