U.S.D.A. forecasts bargain prices for dairy products in 2009

by Ron Sterk
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WASHINGTON — A rather depressed forecast was given for milk and dairy product prices and the U.S. dairy industry in general for 2009 by the U.S. Department of Agriculture at its recent Agricultural Outlook Forum.

"The all milk price is expected to be its lowest since 1978," the U.S.D.A. said. "Low milk prices will push the milk-feed price ratio (price paid for 100 lbs of milk compared to cost of 100 lbs of 16% protein feed) into the 1.5% range, a record low, and leave producers with the worst profit outlook in years."

The price paid to producers for all milk in 2009 was forecast by the U.S.D.A. to average between $11.25@11.85 a cwt, down 35% to 40% from $18.32 a cwt in 2008 and compared with $19.13 in 2007, when prices peaked with a third-quarter average of $21.67 a cwt.

U.S. prices for milk and many dairy products peaked in 2007 due to strong global demand, the result of a weak U.S. dollar, strong Asian economies, low stocks of some dairy products and drought-reduced milk production in Oceania.

"International demand for U.S. exports pushed domestic prices for milk and dairy products into the stratosphere in 2007," the U.S.D.A. said. Strong exports of cheese, butter and nonfat dry milk continued to support U.S. milk prices in the first half of 2008. But as milk production increased in the U.S., Europe and Oceania, making U.S. prices less competitive, and as the global economy worsened, domestic and foreign demand for U.S. dairy products turned sour in the latter half of 2008 and so far in 2009.

"For 2009 the product price outlook is for weaker prices through much of the year. Cheese, butter and nonfat dry milk (N.D.M.) prices will be near support levels during the first half of the year. Producers can sell excess supplies of cheese, butter and N.D.M. to the Commodity Credit Corp. of the U.S.D.A. at minimum support prices, which are $1.13 a lb for cheddar cheese blocks and $1.10 for barrels, $1.05 a lb for butter and 80c a lb for N.D.M."

Since Oct. 1, 2008, and through the end of February sales of N.D.M. to the C.C.C. totaled more than 184 million lbs and were continuing to build in March. The U.S.D.A. forecast sales would total 575 million lbs for 2009. Butter sales to the C.C.C. began in the first week of January, totaled 4.6 million lbs at the end of February and were forecast to reach 55 million lbs for the year. No cheese had yet been sold to the C.C.C. although the U.S.D.A. expects sales of 20 million lbs in 2009. Most of the C.C.C. purchases were expected in the first half of 2009, but the stocks then must be sold back onto the market, potentially adding supply to ongoing commercial production.

The U.S.D.A. forecast N.D.M. prices would average 80½@85½c a lb (with the 80c-a-lb support price serving as a floor) in 2009, compared with $1.23 in 2008 and $1.71 in 2007. Dry whey prices were forecast to average 16@19c a lb in 2009, down from 25c in 2008 and 60c in 2007.

"N.D.M. and whey have been export sensitive products for some time and softness in international markets and large domestic supplies pushed prices down," the U.S.D.A. said.

Cheddar cheese prices were forecast to average between $1.21½@1.27½ a lb in 2009 compared with $1.89½ in 2008 and $1.74 in 2007. Butter prices were projected to average between $1.10½@1.19½ a lb, down from $1.44 in 2008 and $1.34 in 2007.

The U.S.D.A. expects milk and dairy product prices to continue trending lower in the first two quarters of 2008 but then to begin moving higher in the latter half of the year as dairy cow reductions finally start to have an impact on milk production. "Some recovery is forecast for the third and fourth quarters of 2009," the U.S.D.A. said.

Even though dairy producers faced "severe profit pressures," the U.S.D.A. indicated dairy cow numbers would not be cut enough to reduce milk production until the third quarter of 2009. Producers tend to cull less productive cows first, the U.S.D.A. noted, and a near record large number of milk replacement heifers were available to bring into production at the start of 2009.

The U.S.D.A. projects the number of milk cows will average about 100,000 head fewer in 2009 than in 2008, although fourth quarter 2009 cow numbers are expected to be down more than 200,000 head from the first quarter.

"Ultimately any price recovery will depend on bringing milk production in line with lower demand," the U.S.D.A. said.

This article can also be found in the digital edition of Dairy Business News, March 2009, starting on Page 14. Click here to search that archive.

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