Wisconsin Ag Connection - Cropp: Several Factors Aid in Keeping Milk Prices Higher in 2011

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Cropp: Several Factors Aid in Keeping Milk Prices Higher in 2011
Wisconsin Ag Connection - 07/25/2011

Lower increases in U.S. milk production, a boost in dairy exports and the recent heat wave may all work together to keep milk prices near that $20.00 level through the end of the year. That's according to this month's Dairy Situation and Outlook report by Dr. Bob Cropp, professor emeritus with the University of Wisconsin-Extension. He says the USDA's milk production report for June showed the smallest relative increase so far this year compared to year ago levels--with most midwestern states, such as Wisconsin, Illinois, Indiana, Iowa and Minnesota, showing decreases in production.

"The July Class III price will be above $21.00 compared to just $13.74 last year," Cropp predicts. "The July Class IV price will be near $20.65 compared to $15.75 a year ago. These could be the high prices for the year, but may be not. The fairly wide spread summer heat now being experience is likely to effect milk production, especially if it continues for several days. So August prices may actually hold near these levels."

He says Class III dairy futures have strengthened with prices not falling below $20 until October and below $18 until December. Class IV futures don't fall below $19 until October. Dr. Cropp notes that we could end the year with Class III averaging near $18 compared to $14.41 last year and Class IV averaging near $19 compared to $15.09 last year.

"This is a more optimistic outlook than last month. But, history clearly tells us the prices can change rather quickly with new market developments. How this year's crops turn out and their impact on feed prices will be a key factor affecting cow numbers, milk per cow and total milk production this fall and winter."

Meanwhile, the nation's dairy herd continues to increase. He estimated that U.S. cow numbers grew by 10,000 head in June and are nearly one-percent higher than a year ago.

"Cow numbers have increased each month beginning in October of last year," Cropp's report noted. "A good supply of dairy replacements has more than offset cow slaughter which as been running close to six-percent higher than a year ago."

But fortunately, an increase in dairy product exports are helping to keep those prices a little higher. Domestic butter and cheese sales have also been favorable, while fluid milk sales continue to decline. Compared to May 2010, the retail price of dairy products as a group were 6.9-percent higher compared to all food prices. He says fresh whole milk was 13.6-percent higher, cheese 5.7-percent higher and butter 23.4-percent. However, he says there is some concern that these high prices exports could soften some before the end of the year.

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