Highest Milk Price of the Year in December?
It appears December milk prices will be the highest of the year. The trade anticipates Class III and Class IV by the middle of the contract month with prices basically flat-lining for the duration of the contract. Take a look at price charts for front-month contracts and you will see this. Sufficient pricing has taken place providing a fairly accurate idea of final announced price. An adjustment in the contract may take place due to the release of the weekly Agricultural Marketing Service prices. But even with that, those adjustments are minor.
A December Class III price of $17.30 would be the highest price since December 2014 at which time milk prices were declining from their record highs. Stronger prices through the end of the year are contra seasonal when many years are combined. However, since 1979 there have been 11 years during which December posted the highest price for the year. Four of those years resulted in steady milk prices for a period of time the following year. Five of those years posted declining prices early in the following year. Two of those years posted increasing prices through the first half of the following year. I make note of this not to make any predictions, but just to indicate what has taken place in the past. This does in no way indicated what will happen to milk prices as the calendar moves through 2017.
Class III futures have moved from a discounted market to a market carrying premium over the past month and more so over the past 2 1/2 weeks. Block cheese price was at its high for the year of $1.9425 on November 10 with February Class III futures at $15.98. Block cheese price settled at $1.80 on December 16 while February Class III futures closed at $17.14. Cheese has declined, but futures prices rose as the market sentiment became more bullish resulting in a large shift in market price relationship.
Rising global dairy prices and lower milk production in other countries has improved the bullish psychology of the market. Futures prices look quite a bit better for next year giving the impression the worst is behind us again. Exports have been increasing according to October figures leading the way to more export business. However, this may be slowed with the U.S. Dollar moving to the highest level it has been in 14 years. The Dollar does have an impact on export business, but if supplies tighten in other countries due to lower milk production it may not have a significant impact as international buyers will turn to whomever they can to get dairy products no matter what the cost. That is if it may be for a short duration. If it is longer, then adjustments will be made one way or the other. It could be reduced purchases or it could be finding alternatives that may contain more fillers and less dairy. This is what took place when whey prices reached record highs some years ago. Manufacturers and buyers found alternatives until prices came back down to realistic levels.
It may be an interesting final two weeks of the year, but the greater interest will be demand and price strength through the first quarter of next year. There are many predictions floating around as to milk prices, but that is anyone’s guess right now. The end of this year is remaining stronger than anticipated setting the stage for a better 2017. Remember, do not spend your money before you have it, but make plans of what you would like to do if milk prices remain strong. There remains much uncertainty for milk prices next year.
- November Milk Production on December 20
- November Livestock Slaughter on December 22
- November Cold Storage on December 23
- November Agricultural Prices on December 29