Milk Prices to Face Strong Headwinds This Spring
There seem to be two theories swirling around farm country right now. One says milk prices will come back up by the end of the quarter, the other is that they stay suppressed. Mike North of Commodity Risk Management says milk prices will face strong headwinds throughout the spring.
“The reality is we have a lot of milk and it's not just a U.S. story,” he told AgDay host Clinton Griffiths. “We've watched, you know, year over year growth for the last five years, more milk in the system every single month. That probably doesn't end very quickly.”
According to North, the bullish milk price theory is centered on the drought in New Zealand and Australia and how production is falling there. Still, he says for every pound that they're losing, we're gaining seven and a half pounds of new production in Europe.
“So there's massive milk coming into the equation,” he explains. “Big powder supplies, both here and in Europe. We're looking at massive inventories of cheese and butter and whey concentrates and dry way.”
Can we eat through supplies?
Significant growth in consumption is the only way North sees getting in front of the huge supply of products we have in the U.S.
“I don't see that coming anytime quick,” he says. “Even [if China buys more] we can't get through that inventory fast enough with the added Chinese demand. We're going to be behind the eight ball on that for a while.”
North says getting ahead of the supply will rely on other categories like butter and cheese.
“What kind of other opportunities do we have and how can we draw on some of those other supplies?” he questions. “Because at home our biggest influencers are cheese and butter and then to a lesser degree some of the other products. Can we draw those inventories down? That will be a big conversation point.”
As we head into Spring flush, North says it will be very difficult to get ahead of supplies.
“I see some really strong headwinds for milk prices as we go through the spring,” he says.
Could we price see improvement soon?
“If we go down far enough and if we hold there long enough, maybe then we can retract cow numbers, we can retract supply and ultimately give us a little brighter picture as we talk about the second half of the year going into 2019,” North says.
He advises farmers to take advantage of rallies as they come.