Dairy outlook report: Prices should strengthen, but operating margins remain unfavorable

“Dairy product prices and milk prices should continue to strengthen from current levels each month through December and into 2010,” says Bob Cropp, dairy marketing specialist with CALS and UW-Extension in his March 2009 Dairy Situation and Outlook report. But operating margins for dairy farmers will remain at unfavorable levels despite these higher milk prices, due to relatively high feed and other costs. Federal Milk Income Loss Contract payments which kicked in for February (estimated around $1.50 for February), will only provide partial relief from existing depressed milk prices, Cropp adds. “As we look further ahead, the slowdown in milk production, and hopefully with some economic recovery, milk prices will continue to improve through the year and into 2010.”

Hopefully milk and dairy product sales can continue to hold, Cropp says. The weak economy and increased unemployment will continue to negatively impact restaurant sales particularly for butter and cheese. However, with cheese prices lower than a year ago some restaurants, especially pizza businesses, are looking at additional cheese use as well as efforts to attract customers. The world economic recession will reduce U.S. exports of dairy products in 2009. USDA estimates dairy exports will be down from 2008 about 42% on a fat basis and 29% on a skim-solids basis reflecting relatively greater decline in cheese and butter exports compared to skim milk powder and whey exports.