Stronger Milk Prices Predicted
There are various analysts that are forecasting better milk prices this year with some even suggesting significantly higher prices. First off, I would have to agree that milk prices will be better if current Class III futures prices will be able to hold current levels. Class III futures currently show an average price of $17.53.
There is concern this will be able to hold or improve as the year progresses. Milk production remains strong with manufacturing plants in many areas running at or near capacity. This is concerning due to it not being the spring flush time of year. With spot milk prices as much as $3.00 below class, it makes one wonder just what spot milk prices will be once spring flush reaches its peak. This is difficult to predict. One reason it that winter weather has been relatively mild overall which has kept milk production higher than usual. As a result, production may not surge as usual, but may be somewhat steady throughout the usual spring flush. If this is the case, good domestic demand and the potential for increasing dairy exports could provide further price support to the market.
Exports in December put a nice finishing touch on year that showed milk prices moving back to levels not seen since late 2014. The aggregate volume of exports increased 17% from December 2018 with the total value of those export up 22%. December showed a strong surge in NDM/SMP and whole milk powder exports of 37% and 152% respectively. However, cheese exports declined 9%. Total exports for the year in each category does not look as encouraging as cheese exports are up 3%; whole milk powder exports are down 14%; NDM/SMP exports are down 2%; butterfat exports declined 46% and total whey exports were down 18%. Export value for 2019 reached over $6.0 billion for the first time since 2014. Dairy exports are moving in the right direction and will be key to stronger milk prices in 2020.
There has been a little shake up with Canadian dairy processor Saputo not accepting raw milk from Dairy Farmers of America (DFA) in Wisconsin and plants in the Southeast. This is a result of DFA failing to supply contracted milk volumes to Saputo plants last year. This is expected to stem from DFA plants receiving less milk due to farms leaving both as a result of farms going out of business or finding other plants due to DFA paying low milk prices in comparison to others. DFA also implemented higher balancing charges in the Southeast at the end of 2019. Saputo has replaced the volume of milk previously received at their plant in Murry, Kentucky with milk supply form Select Milk Producers. This will be interesting to watch as unusual events such as this can set the stage for others taking similar action if it is feasible and possible. Farm need to remain in business in order to keep bottling and manufacturing plants in business.
Robin Schmahl is a commodity broker and owner of AgDairy LLC, a full-service commodity brokerage firm located in Elkhart Lake, Wisconsin. He can be reached at 877-256-3253 or through their website at www.agdairy.com.
The thoughts expressed and the basic data from which they are drawn are believed to be reliable but cannot be guaranteed. Any opinions expressed herein are subject to change without notice. Hypothetical or simulated performance results have certain inherent limitations. Simulated results do not represent actual trading. Simulated trading programs are subject to the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. There is risk of loss in commodity trading may not be suitable for recipients of this publication. This material has been prepared by an employee or agent of AgDairy LLC and is in the nature of a solicitation. By accepting this communication, you acknowledge and agree that you are not, and will not rely solely on this communication for making trading decisions.