The big driver on 2013 profits for dairy producers will be feed costs based on planted corn acres and the weather.
"A big corn crop can make your bottom line look a lot better," University of Missouri dairy economist Scott Brown said.
But with weather uncertainty, Brown warns producers to prepare for volatility.
"I can see a corn price with a $4 in front of it, but over $8 is possible with another dry year. With current tight corn stocks, any weather change will affect feed prices," Brown said.
Better profits for the year will depend more on cutting costs than on getting a lift from higher milk prices.
International markets will help domestic prices.
"It is important to pay attention to production in Australia and New Zealand," Brown said. "Profits depend on producing milk at lower costs than your neighbors. Now your neighbors are in Oceania and the rest of the exporting world."
A bright spot is that there are tighter milk supplies in the world market, Brown said. Milk supplies aren't growing by leaps and bounds anywhere in the world.
World trading depends a lot on the strength of the dollar and global economy. "Those are big wild cards," Brown said. "The good news is that the United States has become a large net exporter."
Milk production per cow this winter is not a lot higher than one year ago. "Just think back to the mild weather last winter. It's tough to match that yield pace," Brown said.
Brown projects an all-milk price for 2013 at $19.40 per hundredweight, up from $18.63 in 2012, but with low price gain, profits depend on keeping cost of production under control.
Corn, soybean acres
Expect more corn and soybean acres planted in 2013.
"Corn acres this year will likely be about 99 million acres, which is 2 million more than last year," said David Reinbott, University of Missouri agriculture business specialist. "With a more normal weather pattern, most trend-line yield calculations put yield at 162 bushels an acre."
Planted acres of soybeans also are expected to increase about 2 million acres to 79 million in 2013. Figuring 42 bushels an acre would create a supply of 258 million bushels, Reinbott said.
Winter wheat acres also increased from last year, but not as much as expected.
"There were 41.82 million acres of winter wheat planted," Reinbott said. "The trade estimate was closer to 42.6 million acres. That's about 700,000 less."
If there is plentiful rain that leads to a large crop, prices for both corn and soybeans will drop.
Reinbott also advised keeping an eye on South America's corn crop. Both Argentina and Brazil now look to have a good crop, but "if it turns dry the second half of the season, that could drop significantly," Reinbott said. "Corn still has variability. It could go higher. It just depends on how that Brazilian and Argentinian crop goes."
Compiled by Herald-Whig Staff Writer Deborah Gertz Husar.