17 October 2008 - The size of the U.S. dairy herd likely crested in the summer quarter and is expected to decline in 2009 to 9,245 thousand head after averaging 9,265 this year. An adjustment process been set in motion, and dairy cow population is expected to decline each quarter in 2009 from its 2009 year high.
High feed prices and falling milk prices have reduced profitability, especially for small and medium-sized producers. Although grain prices have declined since last spring and are expected to slip further next year, feed costs remain high by historical measures, especially for alfalfa hay. Countering declining cow numbers, milk yields are forecast to rise by about 1 percent next year, which is below the 5-year average. The increased yield will advance milk production to 191.1 billion pounds in 2009 topping 2008’s projected 189.6-billion-pound total, about the same as the year-over-year increase in 2008.
Exports have buoyed dairy demand in 2007 and 2008, but a number of factors make next year’s export outlook weaker. The U.S. dollar has strengthened vis-à-vis the Euro and some other foreign currencies. European diary prices have declined and are more competitive with U.S. products. Oceania milk production is expected to recover from last year’s drought-induced cutback. Slower global economic growth acts to limit demand. While exports are forecast to decline for all product catagories, dry products are most likely to be affected. The decline for fats is expected to be more modest. Butter exports are expected to retreat less on a percentage basis than other products.
The CCC is forecast to purchase 50 million pounds of nonfat dry milk (NDM) in the fourth quarter of this year. No further purchases are expected in 2009.
Domestic use across all product catagories has been sluggish. High retail prices and a slowing domestic economy will slow growth in use. Domestic use is expected to rise by about 1 percent in 2008 compared with 2007. Next year, domestic use is forecast to climb by 1.7 percent over 2008, but more rapidly on a skims basis as the domestic market absorbs a greater portion of NDM production. Lower prices for all dairy products are expected to stimulate demand. However, this forecast could be upset if a deeper and longer economic downturn than is expected materializes.
Prices across all product catagories are expected to be lower in 2009. The NASS cheese price, which is projected to average $1.900 to 1.910 per pound in 2008, is forecast to slip to $1.780 to $1.870 per pound in 2009. Butter prices are expected to average $1.450 to $1.480 per pound this year and decline to $1.390 to $1.510 per pound in 2009. NDM prices will likely fall from $1.265 to $1.285 per pound this year to average $1.070 to $1.140 per pound in 2009. Whey prices, expected to average 25 to 26 cents a pound this year, will fall to 20.5 to 23.5 cents a pound next year.
Lower expected prices for dairy products are already affecting 2008 milk prices and will continue to pressure prices in 2009. The Class III price is expected to average $17.50 to $17.60 per cwt in 2008 and slide to $15.85 to $16.75 per cwt in 2009. The Class IV price is expected to average $15.10 to $15.30 per cwt in 2008 and fall to $12.95 to $13.95 per cwt in 2009. Slightly higher production is forecast to tip the all milk price lower into next year. The all milk price is projected at $18.40 to $18.50 per cwt this year, declining to $16.50 to $17.40 per cwt next year.