While the debate continues over what can be expected for milk prices this year, see what USDA projects in its 10-year outlook.
We have finished a record-breaking year as far as dairy farm income was concerned and now are looking forward to a year of possibly substantially lower prices. I have heard very little complaining about it due to 2015 milk futures trading at significantly lower prices for quite some time during 2014.
Some dairy farmers prepared for lower prices by protecting milk prices for this year when they realized good opportunity for their operations. This was a difficult decision as the optimal time to hedge milk prices was during the summer of 2014 while 2015 futures prices were $4.00-$5.00 below the current prices at that time.
There was also the opportunity to choose a level of margin protection from either LGM dairy or the Margin Protection Program (MPP) provision under the farm bill. Either of these two programs certainly were not a cure-all, but they did provide another level of income protection. A few weeks ago, when some Class III futures fell to the mid-$13.00 level, it looked as if there were going to be huge payments made under MPP. However, that has changed, with futures prices nearly $2.00 higher than that. Feed prices will have a large impact on when payments will be made if milk prices remain in a sideways price pattern.
So, the debate continues as to what can be expected for milk prices this year. Will inventory increase at a rapid pace due to substantially lower exports? Will culling increase due to lower milk prices and strong beef prices? Will dairy producers do what is usually done when milk prices decline and that is to keep the barns full and improve milk production to make up for the loss in milk price? It is very likely that all of the above questions will be answered with a “yes” as that is the typical pattern seen throughout history.
There are always those who will then step out and predict long-term prices as that is what most people want to hear. If nothing else, they can prepare for the worse and hope for the better. However, in the case of the USDA, it appears they believe there may be little change in milk and product prices over the next 10 years. Last week, they released their long-term baseline projections through 2024.
Cow numbers are anticipated to increase through 2019 to 9.375 million head before USDA anticipates the nation’s dairy herd to contract to 9.215 million head in 2024. Production per cow is estimated to continue to rise through the next 10 years, reaching 27,060 pounds, an increase of 4,802 pounds from 2014. Overall milk production is expected to rise as well, with output reaching 249.4 billion pounds in 2024, an increase of 46.4 billion pounds from 2014.
USDA also estimated dairy product prices on the report. Unfortunately, the estimates are not friendly to continued price increases, but show more stability of average prices. The All-Milk price average for 2014 was $23.95, with USDA estimating a price decline into 2018 to $18.10 before stabilizing a few years and then climbing back to $19.20 for 2014. Cheese, butter, and nonfat dry milk prices are expected to follow a similar patter, with lower prices through the first half and then strengthening during the last half. In 2024, the estimated cheese price is $1.17, butter is $1.50, and nonfat dry milk is $1.58. Dry whey, on the other hand, is estimated to show continuing strength throughout the next 10 years, reaching an average price of 62 cents per pound.
These are long-term baseline projections and certainly nothing to base marketing decisions on. However, they do provide a forward look to the market and gives us something to work from. Obviously, there are many factors that can change these estimates. Forecasting prices and production for the next 10 years is a guess and not a science, with much of based on history, but it certainly provides food for thought.
- Federal Order Class I price on February 19
- January Livestock Slaughter report on February 19
- January Milk Production report on February 20
- Annual Cold Storage report on February 20
- January Cold Storage report on February 20
- January Agricultural Prices report on February 27
Robin Schmahl is a commodity broker and owner of AgDairy LLC, a full-service commodity brokerage firm located in Elkhart Lake, Wisconsin. He can be reached at 877-256-3253 or through their website at www.agdairy.com.
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