Strong Dairy Demand Expected to Bolster Milk Prices through 2013

September 27, 2013 10:56 AM
Strong Dairy Demand Expected to Bolster Milk Prices through 2013

Exports continue to consume increases in U.S. milk production.

Milk prices should remain strong through the end of the year, bolstered by strengthening demand for milk powder, butter and cheese, say University of Wisconsin dairy economists Bob Cropp and Mark Stephenson in their September 2013 Dairy Situation and Outlook podcast.

Cropp, who is more optimistic than the short-term futures market, believes Class III futures will remain in the $18 range into October. September’s Class III average is expected to reach $18.50 per cwt. Cropp also predicts the cheese market will take off in the next couple of weeks, pushing Class IV prices close to $20 per cwt. in October.

Cropp   butter chart 9 27 13Both economists foresee milk prices falling to lower levels in 2014, but Cropp maintains that Class III prices will remain in the $17 range.

Milk availability has been tight in the Northeast and Upper Midwest for cheese-making, due in part to the strong export market. Butter hit $1.60 per pound last week, Cropp said. He’d like to see cheese reach $1.84 a pound to continue to underpin milk prices. That's possible as the industry heads into the dairy-hungry holiday season.

The strength of U.S. dairy exports continues to surprise Cropp and Stephenson. "Exports have been incredible," Stephenson says.

Cropp   exports 9 27 13Even with China’s economic growth dropping below double-digits, it remains at about a 7% development, which most countries would still view enviously, Stephenson says. Demand for dairy products and improving diets continues to increase.

Five consecutive months of increases in U.S. milk production "is not bullish for milk prices," Cropp says, but processors are producing plenty of dairy products to meet demand. U.S. milk output in August rose 2.6% over August 2012. He believes part of the milk output growth is the result of dairies adding more cows, rather than simply increasing more milk per cow.

Cropp   milk chart 9 27 13Of all the major milk producing states, only Idaho and New Mexico showed lower milk production in USDA’s August milk production report. The big change was seen in California, which reported its first production increase in 13 months. August’s milk output in the Golden State rose 2.7% over year-earlier levels. Milk production is "going gangbusters" in the Northeast U.S. and is strong in the Upper Midwest, said Cropp.

View the podcast here

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