Are Softer Milk Prices A Reality?

October 6, 2016 10:09 AM

World Dairy Expo is still underway in Madison, Wis. where price and production are top of mind. U.S. Dairy producers have a growing herd and growing supplies.

“The old saying in the U.S in milk production world is when the milk prices are good, milk more cows. When the milk production is bad, make sure you milk more cows,” says Wisconsin producer, Gordon Speirs.

Those large herd numbers are producing, creating a glut of product and supplies that need a global market.

“The Global Trade Auction has seen some strength over the last two months. In terms of cheese, we are starting to get competitive. We haven’t really turned the corner yet, but some of our cheese exporters have been taking orders. Hopefully, we can start moving this stuff offshore,” says Dairy Herd Management editor, Jim Dickrell.

That product needs to move.

“We’re really at the crux right now of trying to figure out if we’re going to be an exporter or importer like we have been over the last couple of years. If the markets continue to converge, then I would expect exports will start to pick up a little bit. That may be good news for us as we get into next spring,” says Commodity Risk Management Group Senior Risk Management Advisor, Mike North.

Regardless with such large supplies, analysts say the pressure on prices will continue.

“In the interim, I would expect softer markets. We’re looking at lower prices as we head towards the end of the fourth quarter in 2016 and first quarter of 2017,” says North.

North says milk prices will need to move higher to get margins back in the black. Premiums play a part as well.

“As we look at that benchmarks, the move towards profitability, we are going to need to see one to two dollars at least. In some cases and regions, we will need to see more than that. That’s three or four dollars a hundred weight,” says North.

“People are probably break even or a little bit better, but the concern as we look further out into 2017 if those prices are going to maintain,” says Dickrell.

Producers say they’re looking at locking in feed costs since prices have come down.

“To book a years’ worth of feed at ten year low prices, you really have to ask the question, ‘Why not?’ This is an opportunity to buy something that’s produced and you can buy it for cheaper than it’s produced. Lock it up. I’m talking corn,” says Stewart-Peterson Senior Market Advisor, Brian Doherty.

“Probably in the next 30 or 60 days we will lock in feed for the following year,” says Wisconsin producer, Tom Crave.

During a time when world markets may be uncertain, U.S. producers hope for a turn around to return.

“We had a good price increase recently. If you were able to take advantage of that and sell some Quarter four or first Quarter milk, you’re ‘OK.’ You can survive and maintain your way of life. If you didn’t, now you are starting to feel the pinch again of lower prices,” says Doherty.

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