milk money
July 4, 2019

Will Less Milk Mean More Money?

 |  By: Jim Dickrell

Lower milk production this spring and feed quality and price issues this summer all bode well for milk prices this fall.

Already, both Class III and IV futures prices in July and through the rest of the year are above $17 (with Class IV remaining above that mark through May 2020.)

Class III prices could top $18 in October and November, says Bob Cropp, a University of Wisconsin dairy economist in a podcast posted recently. 

Dairy farmers and other close watchers of dairy markets might wonder why prices aren’t even higher, says Mark Stephenson, a colleague of Cropp’s at the University of Wisconsin.

But a couple of factors play into the supply/demand equation. First of all, butterfat and protein levels in the milk farmers are shipping are higher than normal, he notes. “If you look at the yield in the cheese vat, that milk production is not actually down,” he says.

The other factor is exports, says Cropp. In April, milk powder exports were down 25% and butterfat exports were down 71%. China’s whey imports were also down 70%, the lowest level in 9 years. Exports now represent about 14% of U.S. milk production. See April exports here.

With milk production down, you don’t need the higher levels of exports to sustain prices, says Cropp. At the same time, lower exports aren’t spurring demand and driving prices higher.

Still, world demand is sustaining itself and supporting better-than-breakeven milk prices. Rabobank is projecting a $7.15/kg payout price for New Zealand milk powder prices, which translates to about $18/cwt equivalent here in the United States, says Stephenson.

Cropp expects Class III prices will average from $16.50 to $16.70/cwt for 2019. That might represent a break-even price with a $1 basis. And it’s far better than the less than $14 the Class III price started out at in January and February.  

Also check out these articles: 

Farmers to Receive Retroactive Dairy Margin Coverage Payments in July 

Lower Milk Production Bodes Well for Fall Milk Prices