The average Class III dairy price for 2012 was $17.99 and dairymen will tell you that is not enough to operate today’s modern dairy farms with the high costs of inputs.  This past year also provided unneeded stress as farmers fought the drought and the challenge of putting up enough feed for the winter and early spring feeding season.  But last week at the Western Wisconsin Ag Lenders Conference in Menomonie, their lenders were told to expect higher dairy prices in 2013.
      Dr. Mark Stephenson, Director of Dairy Policy Analysis at the UW-Madison Center for Dairy Profitability, forecast 2013 dairy prices to be about $1 a hundred higher than in 2012.  He also told the bankers he believes feed costs will be much more manageable in the new year.  He said his forecasts call for “Soybean meal prices to fall by about $70 a ton and corn prices at harvest  this year will be about $1 lower than last fall.”  That corn price though, may still be a little high.  Also speaking to the ag lenders was Dr. Brenda Boetel, UW Extension Grain and Livestock Marketing Specialist. She told the group that, assuming we have a more normal growing and production year with a corn harvest in the neighborhood of 14 billion bushels, “producers should expect corn prices to land between $4.25 and $4.75 a bushel.”  
         The increase in dairy prices in 2013 should be seen across the country and part of the equation according to Stephenson, is if producers respond to higher prices with a jump in milk production.  He said the higher production toward the end of 2012 did surprise him somewhat but it’s an indication of how producers react with higher prices.  He hopes the better margins for dairy producers will stabilize cow numbers and that culling will still be strong if cow prices remain high in these tight beef markets.  He added the high beef cow prices have allowed farmers to get rid of chronic problem cows and make money doing it.
       Cow slaughter numbers for 2012 show the increase in cows going to slaughter.  For the first 11 months of last year, 2.84 million head went to slaughter.  That’s up over 7% from 2011.  The numbers, from the Milk Producers’ Council, show that’s the highest 11 month slaughter total since 1986 when the Whole Herd Buyout program was in place.  During that period, just over 3 million cows went to market.  By the time the December numbers are in, the 2012 numbers should be very close to 1986 as the mid-December report shows another 66,00 head went to slaughter, the third largest total for any week in 2012.
The difference between taking that many cows out in 1986 versus now is that replacing them can be done much quicker now with sexed semen helping produce so many replacement heifers.
     Stephenson expects western states will be where production increases will respond the fastest to higher prices because that is where many new processing facilities are being built.  Idaho is one state where he expects rapid growth because their farm prices have “Been about a buck lower than the Class III price for many years but a new yogurt plant out there has given them a bump in milk prices.”  Stephenson says states like Colorado and Texas are also responding to new plants with increased production. In more traditional dairy areas like the Midwest and east, he expects more steady growth in milk production in response to slightly higher prices.  Another reason for faster growth in the west is the availability of land to start dairies in places where new dairy plants are being sighted.
      Playing a big part in future milk price increases, according to Stephenson, will be the economy all over the world which could lessen demand for our dairy products.  He alluded to a potential sovereign debt crisis in Europe.  He said, “If that happens that will spill over not only to our economy but also to Asian economies and could dampen demand.”  He also reminded the group that while China is the “500 pound gorilla in the world of exports, our biggest and most consistent buyer has been Mexico and our second largest is Canada but China is certainly an area where we are looking for some growth.”
        Stephenson pointed out that his price forecast for 2013 is “subject to change” based on the world economy as well as what kind of cropping year farmers have in 2013.  If feed supplies continue to be short and prices high, the western style dairies will be at much more risk for survival that our traditional Midwest type dairies.  Another major factor will be the type of dairy provisions we get if Congress ever passes a new farm bill. By extending the 2008 farm bill, the Milk Income Loss Contract program remains but Stephenson doesn’t see it kicking in at all during the year.  The important part of a new bill he said is “what kind of safety net will it contain for the industry.”