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December 21, 2018

Milk Prices Face A Bleak December, Slow Recovery Through 2019

 |  By: Jim Dickrell

The Grinch has stolen Christmas from dairy farmers and the only hope for better milk prices is a slow, painful climb out of Who-ville through much of 2019.

 

“It’s going to be a bleak December, but I do see prices rising through the year in 2019 and there is a potential for a breakout by the end of the year,” says Mark Stephenson, a dairy economist with the University of Wisconsin.

 

Price recovery largely depends on dairy exports, adds Bob Cropp, a dairy economist also with the University of Wisconsin. “Unless we solve the trade tariff [problem] we have on-going with China and Mexico, we’re going to have less exports next year. That is going to have a dampening effect and keep milk prices down,” he says.

 

“But if trade is solved and milk production is a little slower, I think we could do better than forecasts,” he says. His current prediction: Below $15 Class III in the first quarter of 2019, $15 in the second and third quarter, and $16 in the fourth quarter. The average for the year could approach $16, he says.

 

2018 will finish on a low note, with Class III prices below $14, possibly at $13.85. “That’s terrible, and that’s going to give us an average for the year of $14.60 or $14.65 versus $16.60 a year ago. This year’s Class III average will be the lowest in four years,” says Cropp. Prices in December are so bad that there’s a possibility of dairy Margin Protection Program payment triggering below the $8 margin, says Stephenson.

 

If there is any good news, it’s that milk production is slowing. USDA revised its milk production number for October, now saying it climbed just 0.7%. November milk production was up even less, 0.6%. And cow numbers were down 36,000 head from a year ago, and down 48,000 from the first of the year.

 

“That is bullish for milk prices, if you have milk production increases below 1%. Normally, you would say we should have a lot strong milk prices as a result,” Cropp says.

 

But stocks of butter and cheese are way up at a time of year they normally would be declining. Total cheese stocks are up 8%, American cheese is up 10% and the highest in four years, and butter is up 6%. The only major dairy product inventory number that is down skim milk powder, which is down 20% from a year ago but still at higher levels than two years ago.

 

So it all comes back to exports. If the trade disputes with Mexico and China can be resolved, global markets do appear favorable. The European Union has reduced its mountain of intervention powder stocks by half, and could completely be rid of them sometime in 2019. And the last two Global Dairy Trade auctions have also been positive. So there is hope on the horizon. It just could take a while, say both economists.

 

To listen to a podcast of their comments, click here.

 

https://dairymarkets.org/PubPod/Podcast/Outlook/

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