Dairy Market Outlook and Policy Update Prepared for the Midwest, Great Plains & Western Extension Outlook Conference, Louisville, KY August 15-16, 2011 Cam Thraen, OSU Extension State Specialist, Dairy John Newton, OSU AEDE Ph.D. Graduate Student Website at AEDE/OSU: http://aede.ag.ohio-state.edu/programs/OhioDairy/ Midwest, Great Plains, Western Extension Outlook 2011

Midwest, Great Plains, Western Extension Outlook 2011 Summary data on price, cost and margins: Ohio 2003 - 2011 Margins for Ohio dairy farms in 2011 rank the second best in the last nine years! Midwest, Great Plains, Western Extension Outlook 2011

Midwest, Great Plains, Western Extension Outlook 2011 Milk Cows: U.S. Dairy cow numbers continue to advance. The U.S. herd has added back 104 thousand of the 2009 herd reduction of 230 thousand head. U.S. dairy cows are projected to average 9,185 thousand head this year. Ytd = 9,182 head. Milk per cow is estimated at 21,305 pounds this year and forecast at 21,665 pounds in 2012. Midwest, Great Plains, Western Extension Outlook 2011

Midwest, Great Plains, Western Extension Outlook 2011 Milk Production USDA July Milk Production report / 23 major states: The strongest percentage increases in year-over-year milk production were posted in western States, with Texas(10.3), Colorado(6.8), and Washington(6.3), Idaho(5) & Oregon(5) leading the rise. Declines in milk production were observed in the Midwest with Missouri(-5.7), Minnesota(-4.6), Ohio(-4.2), Illinois(-3.7), and Iowa(-2.9) showing the largest declines in 2011 from 2010. With the trend in cows and yield the expectation is a continued expansion in milk production, with 195.7 billion pounds in 2011 and 198.8 billion pounds forecast for 2012 (1.5% increase). Midwest, Great Plains, Western Extension Outlook 2011

Midwest, Great Plains, Western Extension Outlook 2011 > 611 # capita West Surplus Region East Deficit Region West region is a surplus production region while East region is deficit. In 2010, the deficit gap =~ 200 million pounds. Source: Marketing Service Bulletin, CFMO 32. July 2011. Midwest, Great Plains, Western Extension Outlook 2011

Milk & Product Production by Region Production (%change vs. 2005) by Major Dairy Product Cheese: West 43%(+16) / Central 44%(+15) / East 13%(+7) Butter: West 54%(+40) / Central 37%(-8) / East 9%(+22) NFDM: West 78%(+51) / Central 9%(-29) / East 13%(+11) Ice Cream: West 43%(-6) / Central 53%(-9) / East 22%(-29) West Central Atlantic 2010 Milk Production = 192.8 b#’s Source: Marketing Service Bulletin, CFMO 32. May 2011.

Midwest, Great Plains, Western Extension Outlook 2011 Trade: Imports Milk (fb) equivalent imports are placed at 3.4 billion pounds in 2011, declining to 3.2 billion pounds in 2012. Imports (ss) are forecast at 5.0 billion pounds for 2011 and 4.5 billion pounds 2012. The downward trend in dairy imports that began on a fats basis in 2007 and on a skims-solids basis in 2008, will continue into 2012. Midwest, Great Plains, Western Extension Outlook 2011

Midwest, Great Plains, Western Extension Outlook 2011 Milk (fb) equivalent exports are forecast at 8.8 billion pounds this year based on continued strong shipments of butterfat. Exports in 2012 are forecast at 8.7 billion pounds. The competitive price advantage for U.S. butter in world markets has narrowed considerably, which could ultimately slow exports. Milk equivalent skims-solids exports were increased slightly from last month to 32.1 billion pounds for 2011 and are unchanged from last month at 32.3 billion pounds forecast for next year. Trade: Exports U.S. dairy exports now earn $2 for each $1 of imports versus less than $0.5 in 1990 ! Midwest, Great Plains, Western Extension Outlook 2011

Midwest, Great Plains, Western Extension Outlook 2011 Domestic Use Domestic commercial (fb) use is forecast at 188.8 billion pounds this year. A stronger rise is forecast for 2012 as use is forecast to rise to 192.2 billion pounds. (not factoring in a renewed U.S. recession) Year-to-date use through May (vs. 2010): butter up +15%, American cheese +4%, Other cheese +7.1%. Domestic commercial use, on a skims-solids basis, is on track for a robust 2.1% year-over-year rise to 167.5 billion pounds for 2011. For 2012, domestic use is forecast at 170.4 billion pounds, a 1.7% increase. Midwest, Great Plains, Western Extension Outlook 2011

Midwest, Great Plains, Western Extension Outlook 2011 Dairy Product Prices Dairy product prices continue to be revised upward. Cheese prices are projected higher based on current price strength. Butter prices may have reached their zenith in the second quarter. Increased butter and nonfat dry milk (NDM) production, both domestically and internationally, could lower prices later in the year for both products. Butter prices could firm toward the end of 2011 as more milk moves to cheese production. Midwest, Great Plains, Western Extension Outlook 2011

Midwest, Great Plains, Western Extension Outlook 2011 Dairy Product Prices: 2011 Butter prices $1.925 to $1.985 Cheese prices $1.815 to $1.845 NDM prices $1.520 to $1.550 Whey prices $0.475 to $0.495 The Class III price is forecast at $18.00 to $18.30 per cwt. The Class IV price continues to lead Class III prices both this year and next, averaging $19.15 to $19.55 per cwt. The U.S. All Milk price is forecast to average $20.00 to $20.30 per cwt. Midwest, Great Plains, Western Extension Outlook 2011

Midwest, Great Plains, Western Extension Outlook 2011 Price Outlook: 2012 The price outlook for the major dairy products points to slowly declining milk prices toward the end of 2011 and into 2012. Butter price is forecast to decline to $1.615 to $1.745 per pound. Cheese prices are expected to fall to $1.660 $1.760 per pound. NDM prices forecast to decline slightly to average $1.375 to $1.445 per pound. Whey price is expected to average $0.41 - $0.44 per pound. Class 3 price is expected to be $16.00 to $17.00 per cwt next year. Class 4 forecast to be $16.50 to $17.60 per cwt. U.S. All Milk price forecast range $17.75 to $18.75 per cwt in 2012. Midwest, Great Plains, Western Extension Outlook 2011

Midwest, Great Plains, Western Extension Outlook 2011 CME Futures Price Outlook: 2011 -2012 Website at AEDE/OSU: http://aede.ag.ohio-state.edu/programs/OhioDairy/ Midwest, Great Plains, Western Extension Outlook 2011

Midwest, Great Plains, Western Extension Outlook 2011 CME Futures Price Outlook: 2011 -2012 This table is updated daily at the AEDE/OSU Dairy Website : http://aede.ag.ohio-state.edu/programs/OhioDairy/ Midwest, Great Plains, Western Extension Outlook 2011