July 31, 2017

Milk Prices to Rise Amid Static Feed Costs

 |  By: Anna-Lisa Laca

Dairy farmers have survived both the summer heat and the summer price lull. As we head into the fall, weather will cool off but milk prices are expected to heat up.

As usual, milk prices took a summer dip over the past few months. However, thanks to worldwide demand for milk fat, they never took a dive.

“[Fat] has given the whole milk market and dairy complex very broadly some room for optimism not only here, but around the world,” says Mike North of Commodity Risk Management Group. “It’s the anchor to some prices we’ve had.”

According to North, without strong fat prices the farm gate milk price could have been a lot lower over the summer. “It’s been our saving grace in many respects,” he says.

Strong fat prices are opening doors for other dairy products to rise in price as well. That’s welcome news as we head into the fall which is traditionally the strongest season for milk prices.

“Demand growth is imminent,” North says. 

Not only are kids going back to school, which provides a boost to fluid milk consumption, but with the fall comes baking season.

“Grandma’s making cookies, we’re pushing out the pies and we’re buttering things up,” North explains. “Everything is geared towards fall in the dairy business, it’s why our market peaks in September and October.”

For that reason he says there is room for some growth in milk prices in the coming months.

Profitable Grain Prices Remain

The recent corn market has been good news for everybody watching the milk market, according to North. While milk prices are on the rise, the grain markets have been moving sideways at profitable levels for dairy farmers.

“As we’re moving toward corn silage season, with many of those contracts being priced at the bunker, that current corn price will start to show some better profitability for farmers if we can hold these levels,” he says. “While that could change, for right now, a rising milk price against a static feed cost is a good news story.”

As we enter August, all eyes are on the weather as it is the biggest factor for grain prices over the next several months.