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Dairy Price Outlook Continues To Slip

Dairy Price Outlook Continues To Slip

Pennsylvania's 2012 all-milk price may average $20.08 with milk futures and feed costs putting the squeeze on income predicts Penn State's Jim Dunn.

Dairy markets have weakened in recent weeks, led by block cheese and butter prices, reports Penn State Ag Economist Jim Dunn. Nationwide, milk production is growing and butter stocks are up 29% over a year ago. Of course, this meant that Class III and Class IV nearby milk futures both fell. 

Exports of butter and other milk fats have risen sharply in the last few months. That'll help use the additional production and inventories if it continues.

Looking ahead, the Class IV milk futures price for January 2012 was $16.65 per hundredweight. The forecast all-milk prices for 2012, based on the futures prices, imply a Pennsylvania all-milk price of $20.08 per hundredweight. That's $2.07 less than the 2011 average. Dunn expects 2012 average Class III prices to be $17.00 per hundred, and Class IV prices to average $16.73.

Corn and soybean meal prices – pick a day

Corn and soybean markets are still on a roller coaster ride. USDA's mid-January grain outlook reports hit the markets hard. But in my opinion, the market overreacted.

There's still not much corn on hand, and ethanol continues to use 40% of production. So, any bad news for producing the 2012 corn crop will create problems for animal producers. Soybean meal futures follow the soybean market, with March meal futures now at $321 a ton, up 8% from last month.  

Income over feed costs continues to shrink with feed costs up slightly and milk futures prices down slightly. IOFC reflects daily gross income less feed costs for an average

cow producing 65 pounds of milk. 

Signs of a weakening global economy?

The U.S. dollar lost ground in recent weeks, with the New Zealand and Australian dollars 4 cents higher compared to the greenback. The Euro is down 0.7% to $1.297.

Greece's economic issues continue to plague the European Union, raising doubts about the future of the Euro. Overall global trade overall is down.

A recent New York Times article talked about the decline in shipping, with freight rates for dry bulk carriers, such as grain ships, down by more than 50% in the past six weeks. Whether that's indicative of a weakening of the global economy is unclear. But continued growth in China and Asia generally has been important to keeping our economy from weakening.

China is a major force in dairy prices, points out Dunn. But, if China's economy weakens, it would be bad for U.S. exports. On the flip side, the stronger Australian and New Zealand dollars should help our exports.
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