Prices may slide to the $18 level, but here's why the University of Wisconsin economist doesn’t foresee bearishness for U.S. dairy producers.
Dairy prices won’t see a sharp tumble but, rather, a slow decline by year’s end, gliding to the $18-per-cwt. level by December, predicts longtime University of Wisconsin dairy economist Bob Cropp.
Well below April’s record high of more than $24 per cwt., the $18 range may seem like a crash, but 2014 remains a record year for dairy prices, Cropp says in the July 2014 Market Situation and Outlook with fellow UW dairy economist Mark Stephenson.
"Going into 2015, I could see by March or the first quarter getting down to the $17s," Cropp says.
But that doesn’t bode a bearish outlook for dairies. Bumper crops of corn and soybeans, helped by the Midwest's favorable weather this summer, will mean cheaper feed for dairies and continuing positive margins.
"Even if milk prices decline, we’re still going to have favorable margins for milk production," says Cropp.
"Declining, but from very high levels," Stephenson adds.
The two dairy economists chatted over what could be a growing cloud for the dairy industry: the increase in milk production in major dairy countries. New Zealand is expected to boost its milk output by at least 6% over last year. The European Union and Argentina each will raise their milk production levels by some 3%, and Australia by 2%. The U.S., with "one of the more modest increases," Stephenson says, will expand its milk output 2.4%.
"There will be a lot more milk available for export," Cropp warns.
The higher milk output "will cause downward pressure on prices," adds Stephenson.
Cropp and Stephenson also discussed the decline in U.S. exports since June, citing higher U.S. dairy prices over global levels. They also reviewed the strength in prices for butter, which rose to $2.49 per lb., and cheese, which climbed to over $2 per lb.
"Both products have explored the downside before rebounding," says Stephenson. "They’re markets that aren’t sure where they want to be."