Like economy, dairy product prices may have hit bottom

by Ron Sterk
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Somewhat mirroring the economy in general, U.S. dairy prices appear to have bottomed and may be on their way back up. But also like the economy, the trend appears gradual with most gains not realized until later this year and into 2010.

The U.S. Department of Agriculture in its initial projections for 2010 forecast higher average prices paid to farmers for all classes of milk as well as for dry dairy products, cheese and butter compared with 2009. The projections were in the May 12 U.S.D.A. World Agricultural Supply and Demand Estimates with added detail in the May 21 Livestock, Dairy and Poultry Outlook.

"The prospect of high feed costs and low milk prices is expected to continue to pressure dairy herd contraction for the balance of 2009 and throughout 2010," the U.S.D.A. said in its latest Outlook.

The U.S. dairy herd is forecast to average 8,950,000 cows in 2010, down 2.5% from 9,178,000 head in 2009, which is expected to be down 1.5% from 2008. It would be the first two-year decrease in cow numbers since 2003 and 2004, and follows four consecutive years of increases prior to 2009. If realized, U.S. dairy cow numbers in 2010 would be under 9 million head for the first time based on U.S.D.A. records going back to 1924.

It should be noted that the decline in cow numbers over the past eight decades has been more than offset by an increase in milk output per cow, allowing total milk production to rise significantly during the period. In 1930 a U.S. dairy herd of 22,218,000 cows produced 100,158 million lbs of milk. In 2008 a herd of 9,315,000 produced 190,000 million lbs of milk. Output per cow in 1930 was 4,508 lbs a year compared with 20,396 lbs in 2008. Per cow output was expected to increase to 20,448 lbs in 2009 and rise to 20,870 lbs in 2010.

Cooperatives Working Together (C.W.T.), a voluntary self-funded program that pays members to reduce herds, said in early May it tentatively had accepted bids to remove 102,898 cows, or the equivalent of 2 billion lbs of milk production capacity, in the first of a series of herd retirements over the next 12 months. It will be the single largest herd retirement in the six-year history of C.W.T.

"The bids selected ranged from farms with fewer than 50 cows to dairies with over 5,000, demonstrating

that farms of all sizes in all areas are facing a very difficult year in 2009," said Jerry Kozak, president and chief executive officer of the National Milk Producers Federation, which administers C.W.T.

Expected fewer dairy cows led to forecast lower milk production this year and next. The U.S.D.A. forecast 2009 milk production at 187.7 billion lbs, down 1.2% from 190 billion lbs in 2008. Production for 2010 was projected at 186.8 billion lbs, down about 0.5% from this year.

As a result of reduced milk supply and increasing domestic and export demand resulting from improving domestic and global economic conditions, the U.S.D.A. forecast prices for key dry dairy products, butter and cheese to improve in the second half of 2009 and into 2010.

Most dry product prices already are on the upswing. Prices for dry whey, lactose, 34% whey protein concentrate (W.P.C.) and buttermilk powder in late May were up from 20% to about 50% since the first of the year, according to the U.S.D.A. and Milling & Baking News, another publication owned by Sosland Publishing Co. Lows for dry whey, lactose and buttermilk were set in late January and for 34% W.P.C. in October 2008. Still, prices for the four dry products were 10% to 50% below year-ago values and 57% to 85% below peaks and record highs set in the second and third quarters of 2007.

The U.S.D.A. forecast dry whey prices to average in a range of 19½@22½c a lb in 2009 and 24@27c in 2010 compared with 25c in 2008. Nonfat dry milk prices were forecast to average 83@87c a lb this year and 97½@104½c next year compared with $1.23 in 2008. Butter prices were expected to range from $1.16½@1.24½ in 2009 and $1.43@1.56 in 2010 compared with $1.44 last year. Cheddar cheese prices were forecast at $1.24½@1.29½ this year and $1.54½@1.64½ next, compared with $1.89½ last year.

This article can also be found in the digital edition of Dairy Business News, May 2009, starting on Page 12. Click here to search that archive.

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