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March 21, 2017

Milk Prices Face Headwinds to Move Higher

 |  By: Anna-Lisa Laca

Over the past six months, analysts have said prices should rebound and be significantly stronger in 2017 than they were in 2016. While that is still likely to be the case, some analysts are concerned with headwinds facing the milk price on its way up. Namely, increased milk production.

The milking herd is the largest it has been since 1996 and additionally, cows are becoming more efficient.   Tweet: The milking herd is the largest it has been since 1996 and additionally cows are becoming more efficient.

That’s no more evident than in the USDA milk production report which showed February 2017 milk production higher than 2016 production.

“Combined with greater production efficiencies on the farm and greater milk per cow, we’re seeing a lot of milk around the country looking for a home,” says Mike North of Commodity Risk Management. “Production capacity is up and [product] inventories have been growing.”

Meanwhile, other milk producing countries around the world are ramping up their milk production after most backed off for a few months at the end of 2016.

“We’re in this crux where the rest of the world over the last few months have been backing off milk production but things are starting to come back stronger,” North says.

He cites the end of the European milk production reduction scheme as one contributing factor to the increase in milk produced around the world and says New Zealand isn’t going to be down in production as much as originally anticipated.

“We’re going to have to deal with a lot of inventory,” he says.

More inventory means a tougher road to higher milk prices.  Tweet: More inventory means a tougher road to higher milk prices.

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