Milk prices will rise in 2004, say ag economists

BSE effects on U.S. beef prices should be minimal, unless more cases found

The milk-price roller coaster will flatten out a bit for Wisconsin dairy farmers in 2004, according to UW–Madison market analysts. Milk prices should average 50-70 cents per hundredweight higher than in 2003, but highs will be lower and lows will be higher. Wisconsin’s net farm income should total $1.1-1.3 billion in 2004 if higher milk prices prevail. That’s up from $950 million in 2003 and just $640 million in 2002, when milk prices plummeted, say agricultural economists at the College of Agricultural and Life Sciences.

The December 2003 BSE finding will influence cattle and other livestock prices, but the effects should be minimal if no more BSE cases turn up in the United States, the researchers say. Soybean prices will remain sharply higher this year until new crop prospects become clearer, while corn prices should run slightly below last year’s prices.

The economists made their predictions in “Status of Wisconsin Agriculture, 2004,” an annual report produced by the Department of Agricultural and Applied Economics.

Several factors will push milk prices higher in 2004, says dairy economist Bob Cropp. Cow numbers will continue to decline; fewer dairy farms will obtain financing to expand, and replacement heifers will be expensive. Milk per cow is likely to increase less than 2 percent through July, which is below the long-term trend. With replacements expensive and in short supply, more producers will hold on to lower producing cows.

Feed costs may not provide incentives to feed for higher production, Cropp says. Grain and soybean prices are higher than a year ago, and beans will stay expensive at least through late spring. Alfalfa prices remain at year-earlier levels in most markets, but Cropp expects high-quality hay prices to rise substantially as winter progresses. Wisconsin’s alfalfa hay production was down 20 percent last year. “Overall, the supply of high-quality alfalfa will be tight this winter,” he says. “The quality of corn silage is also highly variable in the Midwest.”

With the economy improving, restaurants and other food services are increasing their cheese use. “Where commercial disappearance ends up in 2004 is quite uncertain, but it seems to be improving,” Cropp says. Increased disappearance should boost milk prices. He expects milk prices to average 50-70 cents higher than in 2003, with a more moderate price pattern. Lows will be about $2 higher than in early 2003, and highs will be 50 cents to $1 lower than the highs of late 2003.

The discovery of the first BSE-positive cow in the United States had little effect on U.S. beef consumption, but it led to import bans in Japan and many other markets. Exports to these countries totaled about 8 percent of U.S. beef production in 2003, according to livestock marketing specialist Patrick Luby. If we discover more U.S. cases of BSE, these import bans will likely continue and U.S. consumers may begin to reduce beef purchases. This would hurt cattle producers, beef packers, and retail and food service outlets specializing in beef, while suppliers of alternatives to beef would see demand increase for their products.

If the December BSE case remains an isolated incident and import bans are lifted, its effects on beef prices will be slight. So far, U.S. consumer confidence in beef remains high, and may be enhanced if the BSE incident leads to improvements in meat safety standards and animal identification and tracking. Choice cattle, feeder cattle, and utility cow prices in 2004 should average near 2003 levels, but probably won’t reach their 2003 highs, Luby says. He expects hog prices to average just under $40 per hundredweight. Poultry prices should rise slightly.

Nationally, soybean acreage neared record levels in 2003, but drought cut production to about 2.45 billion bushels, the lowest since 1996. Although they planted 12.5 percent more acres than in 2002, Wisconsin bean growers harvested 28 percent fewer bushels in 2003. The short 2003 soybean crop will yield firm prices at $7 to $8 per bushel for much of 2004, according to economist Randy Fortenbery. However, if we have normal weather and South American crops pan out, bean prices will fall sharply by this fall.

Despite the drought, the U.S. corn crop hit a record 10.3 billion bushels in 2003, which puts downward pressure on prices. Wisconsin growers harvested about 376 million bushels last year, according to USDA estimates, down 4 percent from 2002. State growers harvested 50,000 fewer acres last year, and yields averaged 132 bushels per acre, down from 135 bushels in 2002. The 2003 Wisconsin crop represents a smaller share of total U.S. production, which generally implies a stronger than average basis, Fortenbery points out. A smaller local crop means local prices are not as low relative to national prices as they would be with a larger local crop.

The CALS economists review 2003 and forecast 2004 in much greater depth in “Status of Wisconsin Agriculture, 2004.” Copies of the publication can be downloaded free at http://www.aae.wisc.edu/www/pub/ Printed copies are available postage-paid for $5. To order copies, mail requests to Linda Davis, UW–Madison AAE , 427 Lorch Street, Madison, WI 53706.