January 17, 2018

The Path to Higher Prices Is Through Low Prices

 |  By: Anna-Lisa Laca

As dairy farmers rang in the New Year, many were already looking past the first quarter to hedge some risk on milk prices. While prices are not expected to increase, and some analysts think they will instead grind lower, Mike North of Commodity Risk Management says history shows the path to higher prices is through lower prices.

“We have a large inventory,” he told national reporter Betsy Jibben at the Dairy Strong Conference on Wednesday. “It starts with cows and follows through with a lot of milk that will be looking for a home, especially this spring as we test the capacity of processors.”

According to North, every category of dairy products is sitting on record or near-record inventory which has systemically caused lower prices. A trend he doesn’t anticipate changing soon.

“We look for further [price] declines as we head into spring,” he says. “More milk leads to more product, leads to more inventory which leads to lower prices.”

However, as farmers hope for higher prices to come, North reminds them to look back at milk price cycles in the past.

“The path to higher prices has always been through lower prices,” he says.