cows
April 24, 2018

Is That a Light?

Top Story  |   |  By: Mike Opperman

I’ve always been a glass-half-full kind of person. Spring exacerbates the condition.

Maybe I’m feeling more optimistic than usual because temperatures are warming up, farmers are in the field and it’s time to get my lawn mower out of the garage. I’m seeing a light at the end of the milk price tunnel. Am I delusional?

Before you think I’ve gone crazy, I’m not saying milk prices will hit $25 by August, but I do think we are in the midst of a slow, gradual milk price rise.

Futures prices have been trending up, in general over the past month. In the CME spot trade, butter bottomed out at $2.09 per pound in mid-February. And although there have been a few bumps in the road since then, on April 23 it traded at $2.32. Block and barrel cheese markets have also had their stumbles, but both markets are up almost 20 cents each, respectively, since their lows at the beginning of the year.  If we look at Class III futures, the May 2018 contract bottomed out at just under $14 per cwt in mid-March. At press time, the contract was trading at just over a dollar per cwt higher. If you follow our Know Your Market blog, you’ll know that toward the end of April the average Class III futures price for the balance of 2018 was at nearly $16.

Plus, although prices have not been good, it could have been worse. In the past higher production and a continual increase in cow numbers would have signaled a more significant price down turn. Mike North, president of Commodity Risk Management Group, says it could be worse given the normal spring flush. “The fact that with as many cows as we have, as big of inventories as we have, and as much milk as we have coming at us right now, the fact that we've been able to sustain you know $14 and near $15 prices for this time of the year is actually something that makes me happy.”

The upward trend in futures prices isn’t overly dramatic. But at least they aren’t dropping. A producer friend of mine was ecstatic when they were able to contract milk in the second half of 2018 at a price above their break even.

In order for milk prices to come up, production has to drop and, so far, production could be starting to slow down. While the March production totals were up, the gain wasn’t as great as what we saw in January or February. Cow numbers in March were up over last year, but lower than February, so culling is on the rise. Unfortunately, that may be the result of more dairies going out of business.

There is renewed help on the margin side as well. Updates to the Margin Protection Program make it more palatable for producers. Premiums have dropped from 47 cents to 14.2 cents per cwt. Margins should be set at a level where producers participating in the program will get some return on their premium payments over the next few months.

Producers in California may be able to take advantage of being in a Federal Milk Marketing Order. USDA predicts as much as a 45 cent per cwt milk price boost over the next 8 years. That’s a long time, but at least it’s something for an industry that has seen its fair share of hard times over the past several years.

Maybe I am crazy to see a light at the end of this long, low-milk-price-tunnel. Maybe it’s just a result of milk prices being down for so long. It just pains me to see producers suffering. Many are barely getting by or having to sell off many generations of sweat and blood poured into the family business. 

I’m ready for relief to come, and the little bit of good news that comes with it. Hope always springs eternal.

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