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Dr. Cropp Thinks Milk Prices May Have Bottomed Out
Wisconsin Ag Connection - 05/23/2017

Despite higher production and increased stock levels, dairy product prices are beginning to strengthened as we moved into the summer months. But Dr. Bob Cropp from the University of Wisconsin-Extension says the level of U.S. milk output over the next several months will determine just how much those milk prices will rise.

In his monthly Dairy Situation and Outlook report, the professor emeritus said April was likely the low-point for milk prices after the Class III price fell from $16.77 in January to $15.22 in April. However, the May price could swing back up to around $15.60.

"Milk prices should continue to improve form here out," Cropp said. "Domestic sales appear to be favorable for butter and cheese. Dairy exports are also expected to continue above year ago levels."

His monthly summary said cheese and butter prices have responded to a slower growth in milk production and improved dairy exports. In addition, first quarter dairy exports were up 14-percent by volume compared to a year ago--resulting in the best first quarter since 2014.

"These higher product prices explain the higher May Class III price," he said. "If the Class III price ends up near $15.60, it will average about $2.50 higher during the January to May period than last year. Last year the May Class III dropped to a low of $12.76."

Cropp predicts that as world supply and demand tightens, world dairy product prices will increase. And that could result in U.S. dairy product prices becoming more competitive.

"Milk production among major dairy exporters has been below year ago levels for the EU-28, New Zealand, Australia and Argentina. U.S. has been the exception with higher milk production," Cropp pointed out. "However, milk production by the other four exporters, particularly the EU-28 and New Zealand is expected to start running above year ago levels during the second half of the year. But, stronger buying by China and others will help to keep a tighter world supply-demand situation."

Looking ahead, he says Class III futures have turned more optimistic about milk prices than at the beginning of May. With continued good domestic sales and improved dairy exports, the dairy marketing expert says a Class III price in the higher $17s by October is very possible.

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