July 29, 2019

We Will Have The Highest Milk Prices Since 2014

 |  By: Robin Schmahl

Milk prices look more promising as some fundamental aspects of the market look toward potential higher prices.

U.S. milk production is running lower than the previous year over three of the past six months. This trend is expected to continue as cow numbers continue to decline.

Cow numbers have declined steadily each month since May 2018. Cow numbers have declined year-over-year each month during the first half of this year. This will continue as there are limited expansions taking place and farms will continue to exit the dairy business. The potential for higher milk prices will not stem this tide for a period of time.

Feed will be an issue and those who are in a tight financial situation may not have the ability to purchase feed to carry through until next year. Good quality hay and likely any quality dry hay will carry a high price this year. This just may not cash flow for some dairy operations. 

Nevertheless, milk prices are improving and will benefit many operations yet the improvement is not happening as quickly as many would like. The July federal order class prices will be announced on Wednesday, July 31st and will result in the highest Class III price since December 2014 and possible the highest Class IV price since either November 2015 or November 2014 depending on what is announced. The price in November 2015 was $16.89 the trade is currently anticipating a price at $16.90. This is certainly positive, but higher prices need to unfold in order to stem the tide of dairy farm losses. 

So, can we be confident milk prices are headed higher without setting back during the second half of the year? That will depend on demand and how much product buyers already have on hand. Generally, buyers become more aggressive during the second half of the year as orders increase for fall and end of the year holiday demand. However, it has been a buyer’s market with buyers having the desire to increase ownership earlier without having to chase prices higher. This may have reduced some of the need to be aggressive during the second half of the year. Evidence of this has been and is being seen as cheese and butter cash prices have been choppy, but moving higher very slowly. 

Inventory levels of cheese have been climbing the first five months of the year, but did show a decrease in June which increases the optimism for decreasing inventory as the year progresses. However, butter stocks have been running below the previous year for the first six months of this year, but that has not kept butter price trending higher. The same pattern could hold true for cheese as well. 

The market is looking more positive for the second half of the year, but a price decline is not out of the question. However, a price decline may be limited, but certainly something to protect against using the marketing tools available for protection price without limiting upside price potential.