Dairy prices during 2014 will be lower than 2013 prices as good returns over feed costs trigger a sizeable increase in U.S. milk production.
This year, I estimate that the Class III price will most likely average just under $18 and the Class IV price, approximately $19. And next year, I expect the Class III price to average between $16.25 and $16.50. My estimate for Class IV prices falls somewhere between $17.75 and $18. However, I’ve gone a step further.
In the absence of USDA estimates, I polled five dairy economists—those who prepare projections for their dairy processor and dairy cooperative bosses. These forecasts are neither public nor published. I’ll only share a summary, but I think you will find the results of the survey insightful.
First, a look at supply and demand: Lower feed prices will certainly contribute to a larger milk supply here. Higher milk prices will help trigger additional growth in New Zealand and Europe.
The milk supply in China is a bit of a mystery, but it sounds like a major shortfall has developed. In an effort to improve domestic milk quality in China, the government has started discouraging Mom and Pop dairies and increasing the construction of larger dairies. The discouraging apparently got ahead of encouraging, and Chinese milk production was almost certainly down 10% to 15% during the first half of 2013.
Demand will remain robust around the world during 2014. Our economy will continue to improve. More importantly, personal disposable income around the world will continue to improve, and more money quickly translates into more consumption.
So, what are the economists (and yours truly) saying about 2014 prices? The Class IV milk price will more than likely be the "higher of" the two Classes all year long. That said, the forecast range is wide.
One forecast has the Class IV price averaging $19.16 next year, but on the low side, others say $16.54. The average of the six projections: $17.55.
The spread is driven by the outlook for nonfat dry milk where the annual average has a low of $1.55 and a high of $1.705. There was more of a consensus when it came to the butter outlook: $1.43 to $1.575.
The 2014 forecasts for cheese and whey were relatively narrow with the annual average cheese price forecast ranging from $1.6125 to $1.67. The whey price forecast is somewhere between $0.495 and $0.5725. These product prices translate into a Class III price somewhere between $16.08 and $17.14. Average all six forecasts and Class III stands at $16.49.
*Editor's Note: Jerry Dryer polled five corporate dairy economists and summarized his and their 2014 price forecasts.
Jerry Dryer is the editor of Dairy & Food Market Analyst, www.dairymarketanalyst.com. You can contact him at firstname.lastname@example.org.