2019 ‘Year of Significant Recovery’
Mark Stephenson, a dairy economist with the University of Wisconsin, says lower milk production in March and declining cow numbers all point to 2019 as a “year of significant recovery” for the dairy industry.
“In the fourth quarter of 2019, there is an opportunity for prices to break,” he says.
Bob Cropp, a fellow economist at Wisconsin, agrees. He says Class III prices will be in the $16 range in May, and in the last quarter of 2019, reach $17.
Stephenson notes that dairy margins are also improving. This winter, the United States Department of Agriculture’s Dairy Margin Coverage program was projected to payout at the $9.50 feed/milk margin through October. Current futures prices say that level of payout will likely end in August. “That’s a good thing,” he says, because it shows actual margins are improving.
While exports were down in February, Cropp notes lower production here will help mitigate surpluses. “Trade is important, but maybe not as important as we think,” he says.
Tariffs don’t tell the whole story, either. Mexico’s cheese purchases surged in February, despite tariffs. And while China’s purchases were down, the biggest impact there was lower whey sales, which are unaffected by tariffs. African Swine Fever, which has afflicted China’s hog herd, has in turn lowered its importation of dry whey.
Lower whey sales have taken lowered Class III prices this winter and spring as a result, he says. “We don’t think about the importance of whey prices, but just a few cents can take a $1 off Class III prices,” he says.
You can listen to all of Stephenson’s and Cropp comments in their monthly podcast here.