Outlook for the U.S. Dairy Sector in 2012

Milton MadisonFarm Service Agency

U.S. Department of Agriculture

Presented at the 2012 USDA Outlook ForumWashington, D.C.February 24, 2012

Milk Production Increase Will Slow

• Returns increased in 2011, leading to:– More cows starting off in 2012– Higher productivity continues

• 2011 Production: 196.2 billion pounds, up 1.8%• 2012 Production: 199.0 billion pounds, up 1.4%

Replacement Cow Prices Staying Low With Ample Heifer Supplies

0

500

1,000

1,500

2,000

2,500

2005

2006

2007

2008

2009

2010

2011

2012

$ p

er

he

ad

45

46

47

48

49

50

51

52

he

ife

rs p

er

10

0 c

ow

s

Replacement Heifers per 100 Cows Replacement Cow Price

Quarterly Average U.S. Cow Herd

9.00

9.05

9.10

9.15

9.20

9.25

Jan-March Apr-June July-Sept Oct-Dec

Mill

ion

he

ad

2010 2011 2012*

*Forecast

Milk per Cow GrowthAdjusted for Leap Year

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Jan-March Apr-June July-Sept Oct-Dec

Per

cen

t

Average 2005-2009 2010 2011 2012*

*Forecast

Quarterly Average Milk per Cow

5000

5100

5200

5300

5400

5500

5600

Jan-March Apr-June July-Sept Oct-Dec

Po

un

ds

2010 2011 2012*

*Forecast

Quarterly U.S. Milk Production Larger

45

46

47

48

49

50

51

52

Jan-March Apr-June July-Sept Oct-Dec

Bil

lio

n p

ou

nd

s

2010 2011 2012*

*Forecast

Demand Growth Sluggish

• Commercial Use Showing Slow Growth– Fat basis use less than 1 percent higher in 2011– Skim solids basis use up 2 percent in 2011– Support from commercial exports of skim milk

products– No sales to CCC since 2009

• Commercial use in 2012 - 1 to 2 percent higher with lower prices

Quarterly Domestic Use Increasing

Fat Basis

35

37

39

41

43

45

47

49

Jan-March

Apr-June

July-Sept

Oct-Dec

Bil

lio

n p

ou

nd

s

2010 2011 2012*

Skim Solids

35

37

39

41

43

45

47

49

Jan-March

Apr-June

July-Sept

Oct-Dec

2010 2011 2012*

*Forecast

Commercial StocksMilk Equivalent

789

10111213141516

Jan-

07

Jul-0

7

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Bil

lio

n p

ou

nd

s

Fat Basis Skim Solids Basis

*Forecast

* *

CCC Net RemovalsMilk Equivalent

-2

0

2

4

6

8

10

12

Bil

lio

n p

ou

nd

s

Fat Basis Skim Solids Basis

*Forecast

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

2005 2006 2007 2008 2009 2010 2011 2012*

$ Billion

U.S. Dairy Exports Forecast Near Record Fiscal Year

* Forecast

Quantity

(million lbs.)Percent of Production

Non-Fat Dry Milk 960 49

Whey 1020 71

Cheese 495 5

Lactose 689 69

Other 514 NA

Butter 140 8

U.S. Dairy Exports 2011

2002 2011

Mexico 229 1,111

Canada 195 429

China 33 313

Philippines 31 256

Japan 101 255

Korea 48 210

Indonesia 10 206

Vietnam 10 194

Malaysia 8 125

Egypt 2 106

Top Ten Destinations For U.S. Dairy Products ($ Million – Fiscal Year)

2012 Dairy Prices Lower

• Class III price to average $16.70-$17.40 per cwt– Cheese price down 10 percent: $1.61-$1.68 per

pound– Whey price up 18 percent: $0.615-$0.645 per pound

• Class IV price to average $16.25-$17.05 per cwt– Butter price down 17 percent: $1.57-$1.67 per pound– Nonfat dry milk price down 8 percent : $1.36-$1.42

per pound

• All milk price to average $18.00-$18.70 per cwt

Class Prices

Class III Price

13

14

15

16

17

18

19

20

21

Jan-March

Apr-June

July-Sept

Oct-Dec

$ p

er

cw

t

2010 2011 2012*

Class IV Price

13

14

15

16

17

18

19

20

21

Jan-March

Apr-June

July-Sept

Oct-Dec

2010 2011 2012*

*Forecast

Quarterly Average Milk Prices

10

14

18

22

2007QI

QIII 2008QI

QIII 2009QI

QIII 2010QI

QIII 2011QI

QIII 2012*QI

QIII*

$ p

er c

wt

All Milk

*Forecast

Retail Dairy Price Index

166

176

186

196

206

216

226

Jan-March Apr-June July-Sept Oct-Dec

1994

=10

0

2010 2011 2012*

*Forecast

Milk Income Loss Contract Program Payments Expected In 2012

• Milk Income Loss Contract (MILC) payments likely for February production– Lower class I milk price– Expected higher feed costs– Final feed cost data available at the end of March

• Payments also likely to be triggered for March through June production

• MILC program payments are expected to total $180 million in 2012

Farm Business Income Projection Lower for 2012

• Average net farm income per dairy farm was record high in 2011 $239,800– Strong rebound from 2009– 2010 income was $158,100

• Income for 2012 is expected to be 26 percent lower than 2011 at $175,000

• If realized, 2012 would be the third highest income year since 2007

Additional Information on the 2012 Outlook is Available on the Following Websites:

• World Agricultural Supply and Demand Estimates

– www.usda.gov/oce/commodity/wasde/index.htm

• Livestock, Dairy, and Poultry Situation and Outlook

– www.ers.usda.gov/publications/ldp/

• Dairy: World Markets and Trade

– www.fas.usda.gov/dlp/dairy/dairy.asp