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Economic Update: USDA outlook cuts milk production estimates, brightens price forecast

Progressive Dairy Editor Dave Natzke Published on 12 October 2021

Update Highlights

USDA outlook cuts milk production estimates, brightens price forecast

For a second straight month, the USDA’s World Ag Supply and Demand Estimates (WASDE) report reduced milk production forecasts and raised projected milk prices for both 2021 and 2022. Combined with lower soybean prices, the implications are that dairy income margins should climb off the extremely low levels this summer.

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Released on Oct. 12, the WASDE report cut milk production forecasts on expectations of lower cow numbers and slower growth in milk output per cow.

For 2021, the USDA forecasts milk production at 227 billion pounds, down 800 million pounds from last month’s estimate. If realized, 2021 production would be up about 1.7% from 2020.

Looking into next year, 2022 milk production was forecast at 229.7 billion pounds, down 900 million pounds from last month. If realized, 2022 production would be up about 1.1% from the 2021 forecast.

For 2021, cheese, nonfat dry milk and dry whey price forecasts were raised on lower expected production. The butter price forecast was reduced slightly.

The projected 2021 Class III milk price was raised 40 cents to $17.05 per hundredweight (cwt), with the Class IV price forecast at $15.70 per cwt, up 15 cents from last month. Based on those averages, the 2021 all milk price was forecast higher at $18.45 per cwt, up 30 cents from last month.

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In 2022, the Class III milk price was raised 65 cents to $17.10 per cwt, with the Class IV price projected $1.10 higher at $17.15 per cwt. The all-milk price forecast for 2022 is $19.20 per cwt, up 80 cents from a month ago.

Beef outlook

The 2021 beef production forecast was raised from last month, with lower expected steer and heifer slaughter more than offset by higher cow slaughter and heavier average carcass weights. Compared to last month’s forecast, projected annual average prices for fed cattle were lowered by $1 to $121 per cwt based on current price movements and relatively large supplies of fed cattle. The fourth-quarter 2021 average price was forecast at $127 per cwt.

Looking ahead to 2022, higher expected placements of cattle in the second half of 2021 are expected to support higher early year supplies of fed cattle. However, expectations of feedlot placements in the first half of 2022 were lowered, and fed cattle supplies in the second half of 2022 are expected to be tighter. The price outlook for 2022 was raised $1 to $129 per cwt, with highest prices in the first half of the year.

Soybean price outlook lowered

In addition to WASDE supply and demand estimates, feed supply and cost projections, the USDA also released the October Crop Production report, Oct. 12, updating 2021 yield and production estimates. Here’s a summary:

  • Corn: Compared to a month ago, the 2021-22 U.S. corn outlook calls for slightly higher production, increased exports, lower feed and residual use, and larger ending stocks. Corn production is forecast at 15 billion bushels, up 23 million bushels from last month’s forecast, thanks to a marginal increase in yield to 176.5 bushels per acre.

At $5.45 per bushel, the projected season-average corn price received by producers was unchanged from last month. That would be about 92 cents (20%) more than 2020-21 average of $4.53 per bushel and $1.89 (53%) more than the 2019-20 average of $3.56 per bushel.

  • Soybeans:  The 2021-22 U.S. soybean supply and use outlook forecasts higher beginning stocks, production and ending stocks. Soybean production was forecast at 4.45 billion bushels, up 74 million bushels from last month’s forecast. The soybean yield was projected at 51.5 bushels per acre, up 0.9 bushels from the September forecast.

At $12.35 per bushel, the projected U.S. season-average soybean price received by producers is down 55 cents from last month’s forecast but would be up $1.55 (14%) from the 2020-21 average of $10.80 per bushel and $3.78 (44%) more than the 2019-20 average of $8.57 per bushel. The projected soybean meal price was forecast at $325 per ton, down $35 from the previous month. If realized, it would be down $67.30 from the 2020-21 average but still up more than $25 per ton from 2019-20.

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  • Dry hay: The USDA’s latest Crop Production report indicates 2021 hay supplies will be lower than a year ago. Production of alfalfa and alfalfa-mixture hay, at 48.2 million tons, is up 1% from the August forecast but down 9% from 2020. Based on conditions as of Oct. 1, yields were expected to average 2.99 tons per acre, down 0.28 ton from last year. Harvested area was forecast at 16.1 million acres, down 1% from 2020.

Production of other hay is forecast at 72.3 million tons, up 2% from the August forecast but down 2% from 2020. Yield is expected to average 2.04 tons per acre, down 0.01 ton from last year. Harvested area was forecast at 35.4 million acres, down 2% from 2020.

For more on the 2021 hay market outlook, read: Forage Market Insights: 3 Ps weigh on hay – production, prices and ports.

  • Cottonseed: The USDA reduced the size of this year’s cottonseed harvest, although it will still be larger than a year ago. The 2021 cottonseed crop is now forecast at 5.491 million tons, up about 982,000 tons (22%) from 2020. Much of the decline was attributed to lower cotton yields in Texas.

Florida lawmakers: PMVAP payments inequitable

Members of the Florida congressional delegation urged U.S. Ag Secretary Tom Vilsack to address inequities facing Florida dairy farmers in a Federal Milk Marketing Order (FMMO) milk pricing formula and the Pandemic Market Volatility Assistance Program (PMVAP).

In a letter to Vilsack, the lawmakers highlighted financial losses suffered by Florida dairy producers – who primarily produce milk for Class I fluid products – due to changes to the Class I mover pricing formula. They also cited PMVAP payment limitations based on milk production caps as an undue burden on the state’s producers.

Read: USDA announces Pandemic Market Volatility Assistance Program for dairy and Dairy pandemic assistance: The devil is in the details.

Earlier this year, dairy producers in three southeast U.S. FMMOs wrote a letter to Vilsack noting producers marketing milk on Florida, Southeast and Appalachian FMMOs incurred a higher proportion of total dollars lost during the pandemic due to high Class I utilization rates in those federal orders. At the time, they estimated losses of about $1.25 per hundredweight.

Read: No FMMO hearing yet; Southeast producers seek direct aid.

Milk pooled on the Florida FMMO totaled about 2.509 billion pounds in 2020 and 1.619 billion pounds through the first eight months of 2021. Of that, about 82% of 2020-21 milk marketings were utilized as Class I.

Twenty Florida members of Congress, led by Reps. Kat Cammack (R-Florida) and Al Lawson (D-Florida), both members of the House Agriculture Committee, signed the letter. They said the COVID-19 pandemic and changes to the FMMO pricing formula resulted in total losses to Florida dairy farmers of $35 billion between January 2020 and February 2021.

CoBank: Supply chains in dire condition

A strong U.S. economy is supporting increased spending on goods and services, but supply chain disruptions and labor shortages are adding significant costs to businesses, leading to inflationary pressures on consumers, according to a new quarterly report from CoBank’s Knowledge Exchange. Supply chains, the report notes, are arguably in the most dire condition since the start of the pandemic and are likely to persist in 2022.

Rapidly rising input costs and product shortages are hitting agriculture particularly hard, as ag commodity prices have flattened, and inflation compresses margins.

Specific to dairy, rising feed and construction costs halted the 11-month expansion of the U.S. dairy herd, while record hot temperatures dented milk cow productivity. Labor supply tightness has prompted dairy producers to evaluate purchases or leases of robotic milkers, which have become more cost efficient with rising labor costs.

Despite the congestion in the global supply chain, exporters continue to move big volumes of U.S. dairy products, particularly milk powder and cheese to Mexico and Asia. Domestic demand for dairy products also remains resilient, with the return to school lifting fluid milk demand and the expanded cheese processing industry’s demand for milk, which is constant and growing.  end mark

Dave Natzke
  • Dave Natzke

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