Milk Prices Expected to Increase with Stable Feed Costs
December 12, 2016
PAER-2016-16
Michael Schutz, Professor of Animal Sciences; Nicole Widmar, Associate Professor of Agricultural Economics
Some improvement in milk production returns may be on the way. In the latest update, USDA has reduced its forecast for national cow numbers in 2017, resulting in slightly reduced forecast from earlier estimates for milk production. The USDA is projecting the 2017 national milk cowherd at 9.37 million head (up 40,000 cows) and milk-per-cow at 23,160 pounds (up 395 pounds). This would be a production increase of about 2% over 2016 production.
Global financial markets and economic, as well as political situations around the World have continued to be less favorable for US markets. This is true across the livestock sector. Numerous factors are impacting dairy trade, including (but not limited to) the strong US dollar undermining export opportunities for most US agricultural products, the slowing of the Chinese economy, general political and economic pandemonium occurring in the Middle East and North Africa, removal of milk quotas in the European Union, and the Russian embargo on imports from the European Union following their annexation of Crimea. Recent election results and their impact on possible renegotiation of trade deals leave export forecasts uncertain.
Despite these uncertainties milk exports on a milk-fat basis are expected to rise by over 2% and imports are expected to be down as well next year.
Looking to the domestic market, USDA Agricultural Marketing Service reported average national wholesale prices for cheese, nonfat dry milk, whey, and butter moving in various directions during the November to December time period. Block cheddar cheese price rose through much of November to $1.95 per lb. but has now declined $1.76. Butter price too has softened from $2.23 to $2.11 per pound, but both cheese and butter prices are historically quite strong. On the other hand, nonfat dry milk price increased from $0.84 to $1.01 per pound. Stocks for cheese have remained high relative to recent years; however, butter and nonfat dry milk have matched reports for recent years. Stocks of dry whey have declined substantially since May.
The December USDA all-milk price forecast for 2016 is currently $16.10 per cwt. Their 2017 forecast is for the all-milk price to rise to an annual average between $16.85 and $17.65 ($17.25 is the mid-point of their range).
The Chicago Mercantile Exchange Class III futures have shown considerable gains in the past 2 months and are trading near $16.75 for early 2017 with increases during the summer months to $17.50. These prices would correspond to an all-milk price around $17.80 to $18.60, respectively.
