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Dairy Enters a ‘Bull-Oriented’ Market

April 23, 2013
By: Catherine Merlo, Dairy Today Western and Online Editor google + 
Cropp   Stephenson 4 23 13
The University of Wisconsin's Bob Cropp (left) and Mark Stephenson says bullish market fundamentals could push Class III prices to $20.  
 
 

University of Wisconsin dairy economists predict a recovery period for dairies.

Despite the slow arrival of spring in the Midwest and the nation's large supply of milk, the dairy outlook is optimistic, say the University of Wisconsin’s Bob Cropp and Mark Stephenson.

The two dairy economists, speaking in their monthly "Dairy Situation and Outlook" podcast, say softening corn prices, rising prices for dairy products and strong export demand point to a "bull-oriented" market. 

"The second half of the year ought to be a recovery period" for dairies, Stephenson says.

He believes Class III milk prices are likely to reach $20 per cwt. by mid-summer. Class IV futures prices have already hit $20, while Class III futures have climbed to the $19 level.

The milk supply continues to tighten in the West, with California – the nation’s leading milk producer – cutting production by 3.3%, according to USDA’s March Milk Production report. Arizona’s output dropped 2.8%, while New Mexico cut its production by 2.9%. Texas was down 4.1%.

Cropp   milk prod chart 4 23 13Wisconsin and Michigan both increased their milk output by 3%.

Overall, U.S milk production dropped one-tenth from year-ago levels. "That’s still a lot of milk," Cropp says, "A year ago, we were drowning in milk."

Even so, processing facilities in the Upper Midwest are handling the milk supply, adds Cropp.

Stephenson said he had heard concerns that some farmers were going to run out of feed as supplies dwindled from last year’s drought-reduced crops.

"Alfalfa hay prices have jumped quite a bit here in the Upper Midwest," Cropp says. "Soybean meal is also up."

In the West, however, hay prices have dropped as area alfalfa growers begin their first-cutting harvest.

Cropp dairy ration 4 23 13

Prices for butter, cheese and milk powder have increased, with butter climbing 21 cents per pound this month, while cheese blocks are up 30 cents. New Zealand’s drought and reduced milk production in the European Union and Argentina are driving concern that supply won’t meet demand, say the two economists. With burgeoning overseas markets seeking more dairy products, the projected shortfall is driving dairy prices higher. 

Cropp and Stephenson also say that some movement has begun in farm bill discussions, with expectations that May could possibly see some legislative action.

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