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March 31, 2017

Cheap Corn Makes Cheap Milk

 |  By: Jim Dickrell

Prospects for better milk prices through 2017 have softened somewhat as winter ends. Markets point to rising milk production both here and in Europe, but one of the underlying factors is cheap feed, says Phil Plourd, president of Blimling and Associates, a dairy market analysis firm.

Plourd spoke at the Associated Milk Producers Association annual meeting here in Minnesota this week. “One of the things we’re struggling with is what it means to live in a world where corn is $3.50/bu and not $7. We’re not going to see a lot of $20 milk with corn at less than $4/bu,” he says.

In fact, $3.50/bu corn is more supportive of Class III prices in the $15.25 to $15.50 range, he says. Markets will get a better handle on where corn prices are headed with today’s USDA’s Prospective Plantings. USDA is projecting a 4% decrease in corn plantings, and a 7% boost to soybean acres.

The other backstop on prices are cheese and butter inventory stocks. “February cheese stocks growth is well above average, and we’re on track to peak at 1.3 billion pounds of cheese in stocks,” says Plourd. “Butter stocks are at 61 million pounds, up 20% year over year.”

 “2017 is still pricing out ahead of 2016 and the five-year average,” he says. “And cow numbers are still rising and are at their highest level since 1996.”

Given current market conditions, Blimling is projecting a 2.2% increase in U.S milk production this year. How much milk prices change will depend on consumer demand and consumption. If cheese demand is up only 2%, says Plourd, that could mean markets will slip and prices deteriorate.