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Drought impacting dairy prices too

By Jean Caspers-Simmet

Date Modified: 11/28/2012 8:36 AM

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DUBUQUE, Iowa — Weather had a big impact on dairy prices as well as grain prices, said Bob Cropp, professor emeritus and dairy marketing specialist at the University of Wisconsin-Madison.

Speaking at last week's Tri-State Agricultural Lender's Seminar in Dubuque, Cropp reminded everyone that a year ago, he was talking about increased milk production and lower prices.

"The widespread drought has dramatically changed the price forecast for the last half of this year going into next year," Cropp said.

Milk production increased and prices fell in the first half of 2012. U.S. milk production was up 4.1 percent from January through March and 3 percent from January through June.

"Any time you get production up over 2 percent, that's a lot of milk," Cropp said.

Milk plant capacity was stretched, and in California dairy co-ops placed quotas on members. It took as much as 22 hours for some milk trucks to unload Easter weekend in Wisconsin.

Class III prices, milk going for cheese, dropped from $17.05 per hundredweight in January to $16.63 in June. Class IV prices, going for nonfat dry milk, dropped from $16.56 in January to $13.24 in June. More Midwest milk goes to cheese production while in California more milk goes for nonfat dry milk powder.

Lower milk prices and higher feed costs have tightened margins throughout the country. Corn is $7.50 per bushel compared to $5.70 per bushel last year. Alfalfa hay is $210 per ton compared to $198 last year. Soybean oil meal is $565 per ton compared to $336 last year.

The milk price to feed cost margin dropped to just above $1 per hundredweight for July and August. It's up to about $5 for October but was $7 to nearly $9 just last year.

Mailbox milk prices, the amount farmers actually receive, were $2.50 to almost $3 more for Midwest farmers.

Starting in September, both milk per cow and the number of milk cows started to decline nationally, Cropp said. For the rest of 2012, both U.S. cow numbers and milk production will drop with decreases larger in the West.

Production will be slightly higher for the year given the strong increases earlier this year, Cropp said. Domestic sales of fluid milk will be down 1.6 percent, and butter and cheese sales will be positive. Record dairy exports were reported in 2011, and 2012 exports have been running higher than 2011.

U.S. dairy exports now account for 13.5 percent of total U.S. milk production, Cropp said. The U.S. share of world dairy trade is 19 percent compared to 34 percent for New Zealand and 34 percent for European Union countries.

U.S. average mailbox prices are estimated to be $19.34 for 2012 compared to $20.21 for 2011, Cropp said.

High feed prices and low availability of quality forages will reduce 2013 cow numbers and slow increases in milk per cow. The net result is that total milk production will hover just above or below 2012.

"The world supply-demand situation will remain tight," Cropp said. "Drought and high feed prices are lowering Western Europe and Argentine milk production while world demand remains strong. Increasing milk production in New Zealand and Australia could lessen the tight supply. Exports as a percent of milk production could still be 13 percent or more helping to support milk prices."