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Milk Prices Poised to Climb

19:06PM Jan 30, 2013

USDA raises estimates for dairy prices amid strong demand, but some foresee even higher levels ahead. Milk prices are poised to climb this year, despite having slipped in recent months, an industry analyst says.

USDA projects Class III prices to reach $17.65 to $18.45 per cwt. above the $17.44 average it estimates was achieved in 2012. Yet some market analysts, including Dr. Mark Stephenson, dairy economist with the University of Wisconsin, believe dairy prices could rise even higher, particularly in the second half of 2013.

Stephenson says he’s mystified by USDA’s tempered price outlook as well as by the recent decline in nearby milk futures. Prices for Class III future have been tumbling since about mid-October, when they traded around $19 per cwt.

They’ve since dropped to the $17.50 to $18 range. Stephenson believes the Class III outlook is at least $1 per cwt. above those levels. "There’s been no obvious pullback in demand," he says. "We’re looking at short, or at least flat, milk production in the U.S. this year. If demand for exports holds and the domestic market grows, then all of sudden milk supplies will be tight."

In its Jan. 11 World Agricultural Supply and Demand Estimates report, USDA predicted 2013 U.S. milk production at 199.9 billion pounds, down slightly from the 200 billion pounds it now believes dairies churned out.