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November 27, 2018

Dairy Markets Can’t Shake ‘Range-bound’ Swamp

 |  By: Jim Dickrell

Even though last week’s October milk production report should have been at least slightly bullish, dairy markets have failed to respond coming off the Thanksgiving holiday.


“We seem to be range bound,” says Mark Stephenson, a dairy economist with the University of Wisconsin, in a monthly podcast he produces with fellow economist Bob Cropp.


“One week we’re up a little bit, the next week we’re down. There has been no piece of news to make a really big statement of where prices are headed,” he says. “I don’t think the fundamentals reflect where we are here [in terms of prices].”


The United States Department of Agriculture’s (USDA) October milk production report showed milk up just 0.8% over year earlier levels. Cow numbers are down 30,000 head, about 0.3%, and have been lower from year-earlier levels since June.


However, the October cold storage report showed cheese stocks up significantly when traditionally they should be declining at this time of year. American cheese stocks were up 10% while total cheese stocks were up 8%, says Cropp. He notes that cheese exports are down due to the tariff war with Mexico and China. And whey exports and prices are off as well.


If the current trends continue for the rest of the year, Class III prices for 2018 will finish at their lowest level in four years, Cropp says.


Like Stephenson, Cropp believes futures prices are too soft, and he is more optimistic that prices will rebound in 2019. But that price recovery could come slowly, and not to the point that would make farmers all that happy. “Class III prices could hit the $15s by the second quarter and the $16s after that. But it doesn’t look like great milk prices next year,” he says.


Stephenson agrees: “There’s a little too much milk production than the world likes to see, and we have unfriendly trade practices.”


The one thing that could help prices: “Eat more cheese,” says Cropp.


To listen to the entire 9.36-minute podcast, click here.

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