Look For Dairy Price Recovery by Early Summer
Class III prices could climb above $16 in May or June and reach as high as $17 in the fourth quarter of 2019, say University of Wisconsin dairy economists Bob Cropp and Mark Stephenson.
Both economists point to slowed milk production, poor margins and reduced heifer numbers as reasons for price recovery in just a few months. They note that 35 of the 50 states reported lower milk production last year, and 39 states reported fewer cows.
“With this production, and export and domestic demand growth, we could see $16 Class III production by May or June, and the high $16s by the fourth quarter,” says Cropp.
Stephenson says world production is also soft, with drought in both New Zealand and Australia, and flat output in the European Union. He believes Class III prices could rise to $17 by the fourth quarter, especially if cheese and butter stocks tighten and milk production is less than robust. “We could see much stronger prices by then; I think that’s a very plausible scenario,” he says.
Both economists are also urging dairy farmers to circle June 17th on their calendars. That’s the date they can sign up for 2019 Dairy Margin Coverage insurance at their Farm Service Agency (FSA) offices. “Farmers better get down there [to their FSA offices] because there will be some pretty good payments available,” says Cropp.
The milk-feed margin was $7.99 in January, so the DMC payment would be $1.51/cwt for those farmers enrolling for $9.50/cwt coverage. The 2019 forecast, based on current futures prices, shows that Tier 1 payments (milk volume up to 5 million lb) would net 46¢/cwt (after premiums are paid) for $9.50 coverage for the year.
You can listen to Cropp and Stephenson’s comments in a podcast here.