The first half of 2011 doesn’t look good for dairy producers, warns a University of Missouri dairy economist. Milk prices are expected to average $15.75/cwt, down from $18 in the last quarter of 2010, while feed prices continue to rise, says Scott Brown of the university’s Food and Agricultural Policy Research Institute.

“The combination of low-price milk and high-cost feed makes for break-even margins at best,” he says. “This hurts chances for producers to rebuild equity lost from mid-2008 through 2009.

“What producers can anticipate is volatility,” he adds. “From record highs to record lows, the industry faces rapid changes.”

Producers saw strong recovery in milk prices this year, with September prices $4.70/cwt
above year-earlier levels. In response, they boosted production. “Continued growth will be limited as producers deal with higher feed costs,” says Brown.

Growth in the milk supply is projected at 1.3%. “Even that modest growth will keep the financial pressure on,” he says.

Consumer demand is a big wild card in the milk price outlook. Demand hinges on general economic recovery and continued growth in income. A drop in unemployment rates would be especially helpful.

Strong international sales could help. Dairy exports increased dramatically this year, and should remain strong into 2011. However, supplies of dairy products from Oceania, including Australia and New Zealand, will affect the global demand for U.S. products.

The number of dairy cows in Missouri fell below 100,000 in August, and the state could lose another 3,000 cows next year, says Brown.