Milk powder.
October 24, 2016

Stronger World Prices Bode Well for U.S. Dairy Exports

 |  By: Jim Dickrell

 A convergence of world and U.S. dairy prices bode well for increasing U.S. exports and strengthening of milk prices, say University of Wisconsin economists Mark Stephenson and Bob Cropp.

“It’ll be a better Christmas than we had last year,” says Stephenson. “We’ve had a convergence of world market prices with U.S. prices. The rest of the world has come up and ours have gone down.”

Examples: Cheddar cheese prices on the Global Dairy Trade (GDT) auction last week came in at about $1.50/lb compared to about $1.56 on the (Chicago Mercantile Exchange). World butter prices were about $1.80 on the GDT last week compared to $1.78 on the CME.

Milk powder exports are already strengthening. They were up 39% in August, with Mexico increasing its powder purchases 80%.

“I’m hopeful, in fact expecting, more exports without CWT (Cooperatives Working Together) assistance,” says Stephenson.

Part of the reason is the rest of world is slowing milk production. The European Union has instituted a voluntary supply management program in the fourth quarter this year, which will reduce milk production nearly 3%, says Cropp. EU milk production in 2017 is also predicted to be flat, while weather problems in New Zealand and Argentina have curtailed output there, he says.

Cropp is projecting Class III prices to reach the low $16s by the second quarter of 2017, into the high $16s for the third quarter, and even $17 a year from now. “That’s much higher than USDA, but I think USDA is overstating milk production growth next year,” he says.

“Relatively inexpensive feed prices are creating some real push in milk per cow,” counters Stephenson. But in the end, he’s even more bullish on milk prices for 2017, saying increasing product prices can encourage buyers to bid even higher in fear of getting caught short.

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