Market Update
May 28, 2010
Dairy Market Update: USDA Outlook Predicts Continued Strength
By Bob Yonkers, IDFA Chief Economist, Ph.D.
Heading into the summer of 2010, dairy markets in the United States and abroad have recovered from the distress of 2009. According to the U.S. Department of Agriculture, the outlook is for continued strength in dairy markets.
On the supply side, U.S. farm milk production increased by 1.5 percent in April compared to one year ago, following a 0.6 percent rise in March. Prior to that, production had declined for eight consecutive months. With higher farm milk prices this year and somewhat lower feed and energy costs, "the outlook is for producer returns to be higher for the balance of this year and into 2011," the May issue of USDA's "Livestock, Dairy and Poultry Outlook."
Inventories also are part of the supply side, and USDA reported that total commercial cheese stocks topped one billion pounds as of April 30, the highest ever. In addition, the European Union last week announced that it would open up the intervention stocks, including over 145 million pounds of skim milk powder and over 55 million pounds of butter, to bids on June 1.
The final supply component is imports. USDA reported that dairy imports were down 13.6 percent for milkfat and 31.7 percent for skim solids in the first quarter of 2010 versus the same period last year.
As for demand, USDA reported that commercial disappearance of all milk and dairy products rose 1.7% for skim solids and 1.5% for milkfat in the first quarter of 2010 (the most recent data available) compared to the same period last year. This is quite a turnaround; commercial use was lower in 10 of the 12 months in 2009 and down 1.9 percent for the year. USDA's outlook is for this to continue.
"Domestic commercial use is expected to increase this year. A robust 1.2 percent increase is expected in commercial use on a fats basis while growth in use on a skims-solids basis is projected at a slight 0.4 percent rise. Stocks should tighten as use increases," USDA reported.
Some of that increased demand is coming from U.S. dairy exports. The total volume of dairy exports was 21.4 percent higher in the first quarter of 2010 than the same period last year. In fact, 2010 saw the second-highest first quarter dairy exports on record; only Q1 2008 saw greater dairy exports.
And the outlook for dairy exports remains strong. The recent "Livestock, Dairy and Poultry Outlook" from USDA noted that the "global economic recovery is continuing apace, boosting international trade in dairy products. The continued economic recovery is forecast to support higher exports on both a fats and skims-solids basis."
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