Dairy Economists Cautiously Optimistic for Second Half of 2019—and Beyond
June’s milk production and dairy product stocks reports all are signs of much better milk prices for the rest of 2019 and beyond, say University of Wisconsin dairy economists Bob Cropp and Mark Stephenson.
In their monthly podcast following the reports this week, Cropp notes that milk production was down 0.3% in June. Cow numbers were down 10,000 head from May, 29,000 from January, and 91,000 from a year ago.
He also notes that butter stocks are down 2.6%. American cheese stocks are also down 2.6% with total cheese down a half percent.
And while milk powder exports are down 11% and butterfat sales are down 41%, cheese exports are up 9% higher than a year. Because of the tariff brouhaha with Mexico, U.S. cheese sales there have dropped 7%. (Those tariffs have now been lifted, which means cheese sales to Mexico could resume by the fourth quarter.) Fortunately, too, sales to Southeast Asia, Japan and South Korea in particular, have made up the loss of sales to Mexico this year. The biggest problem remains China, with U.S. dairy exports there down by two-thirds.
“This trade stuff is a little like musical chairs,” says Stephenson. When sales are closed in one place, exporters have to find new markets. It tends to work out eventually, he says, but it is disruptive to trade flows.
The good news in all of this, say both Cropp and Stephenson, is that milk prices are rebounding. Cropp expects Class III prices to stay above $17 this summer and reach $18 by the fourth quarter. He expects prices to be 50₵ to $1/cwt higher next year. Prices may dip to $16 in the first quarter of 2020, but then rebound above $17 for the rest of the year.
Stephenson is even more optimistic. For one thing, farmers won’t be able to afford large capital expenditures next year as they rebuild their balance sheets, he says. Plus, heifer numbers are a couple of percent lower than normal.
“I’m not looking at another 2014 (when all-milk prices averaged $24),” he says. But he expects the all-milk price to reach $18.50 early next year, go over $19 in the second quarter, and top $20 by the third quarter.
“It’s possible,” says Cropp. “Forage quality is a problem and feed prices will likely be higher next year.”
On a final note: Stephenson and Cropp are urging dairy farmers to sign up for Dairy Margin Coverage (DMC) if they have not yet done so. Stephenson notes that the DMC payments for the first five months of 2019 (along with the premium discount) are almost enough to provide $9.50 coverage for Tier 1 production for all five years of the program.
“It’s not a bad thing to just do that and know you’re protected for the next five years,” he says.
You can view all of their podcast here.