Market Update
March 26, 2010
Market Update: Spring Brings Cherry Blossoms & Baseline Forecasts to D.C.
By Bob Yonkers, IDFA Chief Economist, Ph.D.
Spring in Washington D.C. means more than just cherry blossoms; it is the time when government agencies and others release economic baseline forecasts for the next 10 years. Baselines are important because any and all proposed policy changes are evaluated by comparing the cost to the government versus the baseline; this is what is known as budget scoring.
The Congressional Budget Office (CBO) released the first economic baseline of 2010 in late January. This is likely the most important one since Congress is required to use it when budget scoring any proposed legislation. CBO estimates that the U.S. Department of Agriculture will spend $352 million on all dairy programs in the 2010 federal fiscal year (FY10, which began October 1, 2009), declining to only $91 million in FY20.
To arrive at that government cost estimate, CBO forecasts that U.S. farm milk production will increase by an average of about 1.1 percent per year, while imports are expected to decline by about 10 percent between 2009 and 2020 to about 3.9 billion pounds of milk equivalent, milkfat basis. The all milk price is estimated to average $16.50 in FY10 and increase each year, reaching $19.00 in FY20 (see figure below).
USDA's economic baseline was released in mid-February at its annual Agricultural Outlook Forum. While similar to the estimates by CBO, there are some differences. USDA expects imports to remain about the same, rather than declining in coming years, at about 4.4 billion pounds of milk equivalent in either milkfat or skim solids bases.
USDA estimates that dairy exports will remain strong during the next decade on a skim solids basis, averaging about 24 billion pounds of milk equivalent, while declining by about 8 percent on a milkfat basis to 3.7 billion pounds milk equivalent. USDA expects the all milk price to average $16.50 in 2010, decline to $15.60 in 2011 and then increase each year to reach $18.50 in 2020 (see figure below).
The Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri, which receives funding from Congress to conduct third-party analysis of policy alternatives, released its baseline this month. While FAPRI expects many key dairy statistics to be similar to the estimates by CBO and USDA, it provides much more detail in its forecasts, including state-level estimates for the number of dairy cows for each of the next 10 years.
FAPRI also includes supply and use tables for the major manufactured dairy products, as well as estimates of per capita consumption and retail prices for selected dairy products. FAPRI expects U.S. dairy exports to increase in the next decade for all but one of the dairy products it tracks. Exports of butter, American cheese, other cheese and nonfat dry milk are expected to increase, while evaporated and condensed milk exports are expected to remain constant; imports of these products are expected to remain almost unchanged.
Overall, these baseline forecasts are consistent with regards to a growing U.S. dairy industry with higher farm milk prices and far greater dairy exports than imports in the coming decade.
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