Wisconsin Ag Connection - Cropp Expects Higher Milk Prices... But Not For Long

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Cropp Expects Higher Milk Prices... But Not For Long
Wisconsin Ag Connection - 11/23/2011

Dr. Bob Cropp says he has some good news and some bad news for Wisconsin's dairy industry going into the holiday season. In this month's Dairy Situation and Outlook report, the professor emeritus with the University of Wisconsin-Extension says the recent spike in dairy product prices will likely result in a slightly bigger milk check for producers of Class III milk this month. Cropp predicts the November Class III price to be higher than the October's $18.03 per hundredweight price. But he doesn't foresee cheese holding their higher values for much longer.

"Cheddar blocks had hit a low of $1.69 per pounds on October 25, but then started a recovery reaching $2.00 per pounds on November 15," Cropp said. "Cheddar barrels were a low of $1.69 per pounds on October 21, but then also started a recovery reaching $2.05 per pound on November 15. The question is whether cheese prices can hold at this higher level? The likely answer is 'no,' with different opinions how far prices will fall."

Cropp said holiday cheese orders are already filled and milk production and milk composition are now higher. He also notes that butter prices could show further weakness, with little change in nonfat dry milk prices.

"The increase in butter production over a year ago has been double-digit since March, up 21-percent in September and 16.6-percent year-to-date," the report stated. "While September 30 butter stocks were 16-percent higher than a year ago, stocks were still 22.6-percent below the five-year average for this date."

Butter exports, which were running well above a year ago, have experienced declines in July through September; while year-to-date exports were still 23-percent higher than a year ago, he said.

Meanwhile, the dairy marketing expert says 2012 will probably not be as profitable as this past year for Wisconsin dairy farmers. He says USDA's November 'Milk Supply and Demand Estimates' forecasts the U.S. all-milk price for 2012 to average $1.55-$2.35 lower than 2011. But he's quick to point out that circumstances can develop changing final milk prices.

"Looking back at December 2010 forecasts for the year 2011, the forecasts were much lower than actual milk prices turned out," Cropp said. "Currently, Class III futures for 2012 are rather flat, averaging about $16.90 cwt.; and Class IV futures average $16.00 cwt.."

He says domestic milk and dairy product sales will continue to be hindered by the weak economy. The level of U.S. dairy exports, while still favorable, is forecasted lower. And the world milk supply is higher, with strong recovery in milk production in Oceania and expected increase in overall production in EU countries, which are the two major exporters competing against the U.S.

And the outlook report says the cost to produce a hundred pounds of milk will remain relatively high this winter, as high corn, soybean meal and hay prices will effect the bottomline. Nationally, October alfalfa hay prices are up 72-percent compared to a year ago, with largest increases in the west and southwest.

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