June 17, 2019

What’s Causing Milk’s Recent Run Higher?

 |  By: Anna-Lisa Laca

The milk markets have been rallying to the upside lately. As of Friday contracts in August, September, October an November were all trading over $17 per cwt. A lot of moving parts are responsible for current price action in the milk markets, according to Naomi Blohm of Stewart Peterson. 

“The recent rally is actually led by cheese,” she told AgriTalk host Chip Flory. “Our spot cheese prices have had a nice week-long rally. They made new highs for the year, cheddar blocks made a new high for 2019, cheese futures traded above their 2018 highest, so it's the cheese leading the way for right now.”

Additionally, she said higher rates of dairy cow culling represented in dairy slaughter numbers are fueling fire.  

“There are more animals that got culled,” she explained. “Today we're at 1.36 million head year ago, we were at 1.299 million.”

According to Blohm, the market is trying to reduce production as much as possible. Yet, the most recent milk production report showed an increase in production, albeit just 0.1%. 

“It's starting to trend a little lower,” she said. “Over the past month, dairy exports had been up a percent so we're still down from year ago levels. But there's little things starting to pick up the pace to be supportive to the market.”

Looking to the future, Blohm thinks higher feed costs will pressure producers to keep culling cows.  

“There are legitimate concerns in Michigan and Wisconsin about not getting feed,” she said. “Our first crop hay is just getting cut, and in some places, it hasn't been cut yet. Silage availability is a concern and some farmers are turning to cover crops. We're getting creative about feeds. So that's a whole other issue that's going to be coming down the pipeline. It's a crazy deal in Wisconsin, and the market needs to wake up to it.” 

Flory suggested farmers contact local ethanol plants to ensure they have a protein source for their feed. 

“The milk market maybe still has more room to run higher and for that industry, they'll take all the help they can get,” Flory said. “Anything you can do to lock in feed costs, do it. We gotta get the crop in the ground yet.”