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Cropp: Continuous Milk Production Keeping Dairy Prices Low
Wisconsin Ag Connection - 11/22/2017

Dr. Bob Cropp has been saying all year long that total milk production will need to simmer down before prices get any better. And one day after the USDA announced that October's national output was up by another 1.4 percent over last year, the professor emeritus with the University of Wisconsin-Extension says the results are predictable.

In his monthly Dairy Situation and Outlook report, Cropp pointed out that U.S. milk production is running about 2.5 percent more than in 2016--which so far has been the biggest year for milk production on record.

"Final milk prices will depend upon the level of milk production, domestic sales and exports," Cropp said. "USDA is forecasting an increase in 2018 milk production of 1.8 percent from a 0.5 percent increase in the average number of milk cows and 1.3 percent more milk per cow. This is a lot of milk following a 1.6 percent increase forecasted for this year."

But if milk prices start the year near current futures market prices, the industry could see heavier culling of milk cows and a lower increase in milk per cow.

Meanwhile, farmers may want to keep an eye on what's happening overseas, as well as on our North American neighbors. Cropp says U.S. exports are experiencing competition from EU and Canada.

"According to U.S. Dairy Export Council, the EU exported 43 percent more skim milk powder during January through August than a year ago," he said. "Canada with very aggressive pricing with export prices below both EU and the U.S. had increased exports of skim milk powder. Canada was exporting about 1,000 tons of skim milk powder per month, but is now exporting 8,000 to 10,000 tons. In addition, Mexico having concerns about the outcome of current NAFTA negotiations has reduced its source of nonfat dry milk imports from the U.S."

As a result, USDA and other forecasters have lowered their price forecast for 2018; and both Class III and Class IV futures have fallen, as well.

In addition, milk production is starting to pick up in all five of the other exporting markets, which means the U.S. will face strong competition going into the next year.

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