January Milk Production ‘Bearish’
An unexpected uptick in milk production, particularly in the West, reported in yesterday’s January milk production report can only be labeled as bearish, say University of Wisconsin dairy economists Bob Cropp and Mark Stephenson.
The report was a “little disappointing,” says Cropp. “A 1.8% increase is a fair amount of milk, and that’s on top of a 2% gain a year ago.”
The other point of interest is that the Midwest and Northeast were up only nominally, but the West showed growth. Even California, which had been down most months over the past two years, reported a 2.2% jump. “The January report was a one-month pivot,” says Stephenson. And it came on the heels of a slightly revised report for December, which final numbers showed up another 4 million pounds.
Even with low commodity prices, prospects for improving dairy exports aren’t great, especially in the first half of 2018, says Cropp. Germany, Europe’s largest milk producer, is increasing production 6% per month, and more of that increase is going into cheese.
“The European Union is still holding a heck of a lot of old powder in storage as well. World market competition is going to be pretty intense,” he says.
The one bright spot is that oil prices are up, which means Middle Eastern countries which export oil will have more revenue. They typically buy nonfat dry milk when they have cash to spend, so that might help powder demand somewhat, says Stephenson.
Based on recent Chicago Mercantile Exchange market activity, Cropp says prospects for milk prices in 2018 are slightly brighter. He’s pegging Class III prices in the low $13s for the first quarter, perhaps reaching $14 by March, climbing to $15 in June and July, and topping out above $16 by November. His previous forecast had no $16 prices in 2018.
Class III prices will likely average about $15 for the year, $1 to $1.25/cwt less than a year ago. “We’ll have to watch production. If we keep increasing, prices could drop,” he says. “I think we will see some exits of dairy farms, and not all of those cows will stay.” Note: Dairy farm numbers declined by 1,600 in 2017.
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