Is There Light At The End Of The Tunnel?
Recently the market has given some hope for higher milk prices. Cheese prices increased with block cheese moving back to the highest level since mid-October. This seemed to indicate the bottom has been established for cheese prices and subsequently milk prices.
I do believe that is the case, but milk prices may be on a steady uptrend. Steady interest in purchasing cheese may be the result of seasonality, interest in purchasing now rather than later, concern over milk supply and a tighter cheese market as the year progresses, and the potential for an increase of exports.
This seems to be a list that includes a lot of ifs. Historically, milk prices have increased in the February/March timeframe before setting back a bit into spring flush. Recently, that has not been the case as prices have been fairly steady. The concern over tighter milk supply is a valid one. Continued low milk prices will put more dairy farms out of business potentially sending more cows to slaughter. Dairy cattle slaughter in January reached the highest level since I have been recording it from 1999.
However, even with a tighter milk supply, inventory of dairy products is large and will take some time to decrease to the point of tightness. This could happen fairly quickly if milk production tightens and exports would increase. The current political situation with China continues to have an impact on exports to that country. Dry whey exports to China over the past six months were down 39% from the same six months the previous year. On top of that, exports of whey to Southeast Asia and Japan were down 23% and 30 % respectively in December.
Exports in the last quarter of 2018 declined significantly and substantially in the final quarter of the year setting a negative tone for early 2019. The bright spot is that even though fourth quarter exports were down 11%, total dairy exports for the year were 9% higher than 2017. The total value of exports were 2% higher.
Good quality alfalfa hay prices continue to increase. The difficulty is being able to find it. Even price for any kind of hay are increasing. There are numerous farms that are beginning to run short on feed and the substantial increase in cost of hay and the fact that it is becoming very difficult to find will force more dairy operations out of business. This upcoming crop year will be critical for forage production. If there is a drought or even a dry spell in some of the main forage producing areas, it could have a significant impact on milk production as time moves forward.
USDA’s most recent milk price estimates for this year were raised from the previous month to an average of $15.20 for Class III, $16.15 for Class IV and $17.30 for the All-milk price. If realized, Class III would be $0.59 cents higher than 2018. Class IV price would show a gain of $1.92 per cwt. The All-milk price would have a gain of $1.12 per cwt from 2018. These prices would be the highest average prices over the past three years.
So it appears there may be light at the end of the tunnel, but the tunnel may still be a long one.