SINKING MILK PRICES DAMPEN DAIRY OUTLOOK AS PRODUCTION SURGES

Writer: Marlene Fritz (208/364-4010 in Boise)
Source: Wilson Gray (208/736-3622 in Twin Falls)

IDAHO FALLS, Idaho–Manufacturing milk prices will just skim over the top of operating costs as Idaho dairy producers enter the 21st century. Although nationwide production of dairy products is running ahead of demand, low feed prices will keep most dairies in the black through the year 2000, says Wilson Gray, University of Idaho extension agricultural economist.

Reporting in the UI’s Fall 1999 Idaho Agricultural Outlook, Gray says "low prices probably will be with us awhile but not forever. The new millenium will probably start with more of a whimper than a bang."

Gray projects Pacific Northwest prices for Class III manufacturing milk at $11.50 to $12.50 a hundredweight for the first quarter of 2000. He expects them to average $11.90 to $12.30 during the new century’s first year.

Across the nation this year, milk production to date is up 3.2 percent over January-September 1998. Idaho milk production, averaging about 20,000 pounds per cow, will likely reach 6.3 billion pounds for 1999–10.5 percent more than last year. With producers adding nearly 2,500 cows a month, Gray projects a Jan. 1 Idaho herd size of 330,000 cows, 9.9 percent more than at the beginning of this year.

So far in 1999, total U.S. cheese production is running 5.5 percent above year-ago levels, while commercial "disappearance" data reported by the U.S. Department of Agriculture suggests that cheese demand is up only 3.5 percent.

Production of American cheese–the primary type of cheese made in Idaho–rose 7.5 percent in the first eight months of 1999, compared with the same period in 1998. August 1999 production alone increased 12.9 percent over the previous August.

"According to the rule of supply and demand, when supply exceeds demand prices decline," says Gray. "Cheese prices peaked at near-record levels in early August and have been declining since."

Idaho processing capacity continues to expand, with Avonmore initiating a major expansion at its Gooding facility this year and WestFarm Foods, formerly Darigold, building a new milk condensing facility at Jerome. According to Gray, several locations are under consideration for additional plant siting.

"The current climate is to continue the growth track that the Idaho industry has been on since 1993," he says. Even if that growth rate slows, Gray says Idaho milk production will likely reach the 8.5 to 9.0 billion pound level by 2002 or 2003. "That has the potential of moving Idaho up to fifth place in national milk production."

The Fall 1999 Idaho Agricultural Outlook is available at length, with supporting tables and graphs, on the web site of the UI Department of Agricultural Economics and Rural Sociology, http://www.uidaho.edu/ag/agecon. Once on the home page, Internet users should click first on Publications, then on the Idaho Agricultural Outlook for October 1999.