Milk price relapses ahead of expected recovery

posted Nov. 7, 2016 9:17 a.m. (CDT)
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by / Heidi Clausen, Regional Editor |

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With the pipelines full, milk prices paid to dairy farmers backslid with the U.S. Department of Agriculture’s Nov. 2 announcement of the Class III price for October production, dropping $1.57 from September to settle at $14.82 per hundredweight.

This is the lowest October milk price since 2009 and is down 64 cents from October 2015. It also brings the 2016 average so far to $14.42. The Class IV price came in at $13.66 per hundredweight for October, down 59 cents from the month before.

Wisconsin farmers were paid an average of $17.90 per hundredweight for their milk in September, according to the National Agricultural Statistics Service’s Wisconsin Field Office. This was a dime lower than the month before and the same as last September’s price. The U.S. milk price for September was $17.30, down 60 cents from Wisconsin’s price but up 20 cents from the August U.S. price. Seventeen of the major milk-producing states registered a price bump in that time, while five states saw a decrease. California had the lowest price in the nation at $15.74.

The latest “Dairy Market Report” from the National Milk Producers Federation and Dairy Management Inc. showed that milk prices have continued a “generally solid recovery from their late-spring low through August, but subsequent changes in Class III and Class IV prices and increased milk production suggest that milk prices may have reached a ceiling for the time being.”

However, improvement is just ahead, according to Bob Cropp, dairy professor emeritus at UW-Madison. The Class III price will move into the $15s for at least the first quarter of 2017, perhaps reaching the $16s by the end of the second quarter and the upper-$16s by the end of the third quarter and into the fourth quarter, he said in his Oct. 20 “Dairy Situation and Outlook.”

“However, my forecast is higher than USDA’s and current Class III futures,” he said. “Prices are very sensitive to rather small changes so, no doubt, forecasts will be revised.”

Milk production nationwide continues to run above year-ago levels, with September output up 2.1 percent from this time in 2015, according to the USDA. The number of milk cows was up 0.2 percent, and milk per cow rose 1.8 percent. Cow numbers increased from June through August but declined by 3,000 head in September, Cropp said. The Upper Midwest, as well as the Northeast, continue to see relatively strong increases. Wisconsin production was up 3.3 percent, and Minnesota had 2.4 percent more milk.

The level of milk production and export sales will be key to the recovery of milk prices, he said. Milk per cow is expected to average 1.6 percent more this year, which is higher than recent average annual increases.

“Another 1.7 percent increase for 2017 appears to be on the higher side,” Cropp said. “Some positive factors point to improved dairy exports. World milk supply and demand is slowly coming (into) balance. Milk production in the (European Union) was increasing about 5 percent early in the year and has dropped below year-ago levels starting in June. The EU has implemented a voluntary supply program, which is expected to reduce milk production for the October-to-December period from a year ago by 2.9 percent. EU milk production is forecasted to increase just 0.5 percent in 2017. The combination of low milk prices and weather issues has forecasts for lower milk production in New Zealand, Australia and Argentina. On the demand side, it appears China will be more active in importing dairy products.”

Stewart-Peterson’s Oct. 28 commodity report indicated strong demand for cheese continuing to support the cash cheese market: “After two solid weeks of trade for cheese, Class III milk futures have not shown the strength that one would expect,” according to the report. “In fact, the cash cheese market is now holding a premium over futures prices, which can be seen as a bullish indicator. From this point forward, if the cash cheese price continues to strengthen cheese and milk, futures will likely have to show a fair amount of strength in order stay in line with the cash market. If seasonal demand continues to strengthen, it could support additional upside into the November/​December time frame.”

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