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Cropp: Milk Prices Not Expected to Exceed 2012 Levels
Wisconsin Ag Connection - 09/24/2013

Even though the Class III milk price has been running higher this year compared to the same months in 2012, it will not likely reach last year's highs for the remainder of 2013. That's the assessment of Dr. Bob Cropp, professor emeritus with the University of Wisconsin Cooperative Extension. In his monthly Dairy Situation and Outlook report, he noted that the Class III price peaked at $21.02 per hundredweight for October 2012. But the Class IV price will surpass last year's high of $18.66 per cwt. in November.

"While looking less likely, the Class III price could still reach $18.50 per cwt. by October. [But] current dairy futures don't reflect this possibility, Dr. Cropp noted. "The October Class III futures decline from the September price of near $18.15 per cwt. to $17.80, and ends for December at $16.87."

With higher milk prices and lower feed costs, margins for dairy producers have also been higher, he adds. However, higher margins have also supported higher milk production during 2013.

"Milk supplies for cheese production in the Midwest and Northeast during August and September have been rather tight, with cheese plants paying as much as $2.50 per cwt. premium for spot loads of milk, and other cheese plants running at a reduced schedule," Cropp said. "Domestic cheese sales seem mixed, but with favorable exports cheese prices, along with dry whey prices, could strengthen enough to push the Class III price to the mid-$18s by October before declining--but staying above $17 per cwt. for December."

Meanwhile, the supply-and-demand factor is also playing a role in keeping prices in check this fall. Cropp cites the latest USDA milk production report for August, which shows milk production rising for the marks the fifth consecutive month.

"However, milk production last year was slightly below year-earlier levels August through October, so it is likely milk production will continue above a year ago for the remainder of the year."

Of course, the cost of feed will be an important factor for milk prices going into next year. Cropp says if projections for the corn and soybeans harvest materialize, feed prices ought to be considerably lower than last winter.

"Lower feed costs and lower exports spell lower milk prices next year. But, milk prices respond to rather small changes in in either the supply side or demand side of the market. Much uncertainty still exists as to where milk prices will end up. Current dairy futures have Class III prices below $17 per cwt. for most of next year," he predicted.

U.S. exports will also be held back in anticipation that New Zealand's milk production recovery will increase their exports of skim milk powder, lowering U.S. exports in 2014.


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