June 26, 2017

Economists Predict We’ll Hit and Stay at $17 Milk

 |  By: Mike Opperman

If production stays where it’s at and exports remain strong, producers will see strong milk prices through the end of the year. Those are two big “if’s”, but University of Wisconsin economists Bob Cropp and Mark Stephenson are bullish on prices for the foreseeable future.

Although the U.S. has had 41 straight months of year-over-year production increases, the rate of increase seems to be slowing down. May production was up just 1.8% over last year, and April was up 2.2%, but production has slowed considerably in the Northeast and Wisconsin.

“The big difference has been production per cow has slowed from a year ago,” Cropp says. “Cow numbers still continue to grow, but production per cow has slowed down.”

We’re in the beginning of summer, a time when heat and drought can have an impact on production. “With the drought in the Dakotas, the heat out west, these factors could play into production per cow and keep production below 2%,” Cropp says. “If domestic sales and exports stay good, that’s positive for milk prices as we look ahead.”

Both Cropp and Stephenson are bullish about prices through the end of 2017, even though futures markets have been bearish in recent months. Spot butter prices have dropped 11 cents from their $2.70 high two weeks ago, and cheese prices have fallen considerably with uncertainty ahead. Cheese inventories are high, and cheese production continues to grow.

“Either people are ramping up production in anticipation of oversees sales or they are trying to get rid of some milk by putting it into product we can sell,” Stephenson says. “Those cheese numbers are not moving in a direction we want.”

Continued growth in milk production and higher product inventories means greater reliance on export sales, and so far exports have been strong. “We’ve had eleven months of stronger exports than a year ago in about every commodity,” Cropp says. “That should continue with activity from China and other countries that are now stepping up and buying.”

Global prices have helped exports as well. “When you look at U.S. prices compared to Oceania and the EU, we are in a competitive position for all products,” Stephenson says. “Our prices have been rising but not nearly as fast as the rest of the world.”

All of these factors play into where the milk price will move in months ahead. Cropp and Stephenson are still slightly bullish on prices, with June in the 16’s and July potentially hitting $17 and plateauing there through the rest of the year. “Cheese market has to rebound and I think it will,” Cropp says. “A lot will have to do with production, if that stays down prices could be a lot stronger.”

On the horizon, prices are forecasted to start to soften at the beginning of 2018. The economists say this is due to a prediction that global prices will start to decline due to the increase in production in competitor countries. Of course, they also caution that a lot could happen between now and then with regard to production and markets.

You can see the entire report from the Wisconsin economists here